Need & barriers of import

Import, Need for Import, Barriers to International Trade

IMPORT, NEED FOR IMPORT, BARRIERS TO INTERNATIONAL

TRADE

1) IMPORT

The term import is derived from the conceptual meaning as to bring in the goods and services

into the port of a country. The buyer of such goods and services is referred to an "importer"

who is based in the country of import whereas the overseas based seller is referred to as an

"exporter". Import goods or services are provided to domestic consumers by foreign

producers. An import in the receiving country is an export to the sending country. Imports

consist of transactions in goods and services (sales, barter, gifts or grants) from non-residents

residents to residents.

DEFINITION

The exact definition of imports in national accounts includes and excludes specific

"borderline" cases. A general delimitation of imports in national accounts is given below:

An import of a good occurs when there is a change of ownership from a non-resident to a

resident. This does not necessarily imply that the good in question physically crosses the

frontier. However, in specific cases national accounts impute changes of ownership even

though in legal terms no change of ownership takes place (e.g. cross border financial leasing,

cross border deliveries between affiliates of the same enterprise, goods crossing the border

for significant processing to order or repair). Also smuggled goods must be included in the

import measurement.

Imports of services consist of all services rendered by non-residents to residents. In national

accounts any direct purchases by residents outside the economic territory of a country are

recorded as imports of services; therefore all expenditure by tourists in the economic territory

of another country are considered as part of the imports of services. Also international flows

of illegal services must be included.

The Business School, University of Jammu 1


Example of Import:-Imports to China

2) TYPES OF IMPORT

There are two basic types of import:

Industrial and consumer goods

Intermediate goods and services

Companies import goods and services to supply to the domestic market at a cheaper price and

better quality than competing goods manufactured in the domestic market. Companies import

products that are not available in the local market.

There are three broad types of importers:

Looking for any product around the world to import and sell.

Looking for foreign sourcing to get their products at the cheapest price.



Using foreign sourcing as part of their global supply chain.

Direct-import refers to a type of business importation involving a major retailer (e.g. Wal-

Mart) and an overseas manufacturer. A retailer typically purchases products designed by

local companies that can be manufactured overseas. In a direct-import program, the retailer

bypasses the local supplier (colloquial middle-man) and buys the final product directly from

the manufacturer, possibly saving in added costs. This type of business is fairly recent and

follows the trends of the global economy.

3) LIST OF TOP 20 COUNTRIES BY IMPORTS

1. United States $ 2,314,000,000,000 2011 est.

2. China $ 1,664,000,000,000 2011 est.

3. Germany $ 1,339,000,000,000 2011 est.

4. Japan $ 794,700,000,000 2011 est.

5. France $ 684,600,000,000 2011 est.

6. United Kingdom $ 654,900,000,000 2011 est.

7. Italy $ 541,200,000,000 2011 est.

8. South Korea $ 525,200,000,000 2011 est.

9. Netherlands $ 514,100,000,000 2011 est.

10. Hong Kong $ 493,200,000,000 2011 est.

11. Canada $ 459,600,000,000 2011 est.

12. India $ 359,300,000,000 2010 est.

13. Spain $ 315,300,000,000 2010 est.

14. Singapore $ 310,400,000,000 2010 est.

15. Mexico $ 306,000,000,000 2010 est.

16. Belgium $ 285,100,000,000 2010 est.

17. Taiwan $ 251,400,000,000 2010 est.

18. Russia $ 248,700,000,000 2010 est.

19. Switzerland $ 226,300,000,000 2010 est.

20. Australia $ 195,200,000,000 2010 est.

21. Brazil $ 181,700,000,000 2010 est.



4) TYPES OF IMPORT DUTIES

Import duties are generally of the following types:-

i. Basic Duty: - it may be at the standard rate or, in the case of import from some other

countries, at the preferential rate.

ii. Additional customs duty: - equal to central excise duty leviable on like goods

produced or manufactured in India. Additional duty is commonly referred to as

Countervailing duty or C.V.D. It is payable only if the imported article is such as, if

produced in India, its process of production would amount to 'manufacture' as per the

definition in Central Excise Act, 1944. Exemption from excise duty has the effect of

exempting additional duty of customs.

Additional duty is calculated on a value base of aggregate of value of the goods

including landing charges and basic customs duty. Other duties like anti-dumping

duty, safeguard duty etc. are not taken into account. In case of goods covered by

provisions of the Standards of Weights and Measures Act, 1976, the value base would

be the retail sale price declared on the package of the goods less the rebate as notified

under the Central Excise Act, 1944 for such goods.

iii. True Countervailing duty or additional duty of customs: -is levied to offset the

disadvantage to like Indian goods due to high excise duty on their inputs. It is levied

to provide a level playing field to indigenous goods which have to bear various

internal taxes. Value base for this additional duty would be as in the case of C.V.D,

under Customs Tariff Act, 1975 minus the retail sale price provision. This additional

duty will not be included in the assessable value for levy of education cess on

imported goods. Manufacturers will be able to take credit of this additional duty for

payment of excise duty on their finished products.

iv. Anti-dumping Duty/ Safeguard Duty: - for import of specified goods with a view to

protecting domestic industry from unfair injury. It would not apply to goods imported

by a 100% EOU (Export Oriented Units) and units in FTZ (Free Trade Zones) and

SEZ (Special Economic Zones). On export of goods, anti-dumping duty is relatable

only by way of a special brand rate of drawback. Safeguard duties do not require the

finding of unfair trade practice such as dumping or subsidy on the part of exporting

countries but they must not discriminate between imports from different countries.



Safeguard action is resorted to only if it has been established that a sudden increase in

imports has caused or threatens to cause serious injury to the domestic industry.

v. Education cess: - at the prescribed rate is levied as a percentage of aggregate duties

of customs. If goods are fully exempted from duty or are chargeable to nil duty or are

cleared without payment of duty under prescribed procedure such as clearance under

bond, no cess would be levied.

5) INDIA IMPORTS

India imports were worth 37753 Million USD in December of 2011. India is poor in oil

resources and is currently heavily dependent on coal and foreign oil imports for its energy

needs. Other imported products are: machinery, gems, fertilizers and chemicals. Main import

partners are European Union, Saudi Arabia and United States.



6) COMPOSITION

Imports can be internally divided according to economic destination and to product classes:

1. Imports contributes to domestic consumption (increasing consumers well-being through

consumption goods), to domestic investments (increasing production capabilities through

new - or used! Equipment) , to domestic current production (e.g. raw materials and spare

parts). There is an important stream of imports that first will be processed, and then exported

abroad. To a smaller extent, import can satisfy public expenditure (e.g. military equipment).

In short, imports contribute to all GDP components, but they are usually left by central

statistical offices apart as a stand-alone aggregate.

2. Import can also be divided by product classes at different levels of aggregation (e.g.

"agricultural product" instead of "rice"). Import of services comprehends for instance

transport and shipping of goods, tourism, banking services, and patent royalties.

7) DETERMINANTS OF IMPORT

Imports are usually seen as determined by:

1. Level and dynamics of domestic income;

2. Level and dynamics of each GDP components (investment, consumption, public

expenditure, exports) as differentiated drivers of imports;

3. Price competitiveness of domestic production, normally influenced by exchange

ratelevel and fluctuations as well as by inflation differentials between the country and

foreign nations.

4. Non-price competitiveness of domestic production, for example as far as product

quality, technological innovativeness, design, promotion are concerned;

5. National attitude toward foreign goods.

6. Shifts in domestic patterns of demand and supply, including the organization of

supply chains and the ownership of distribution channels;

7. Historical links with certain origin countries.

8. Structural trends toward economic integration with other countries.



IN PARTICULAR, IMPORTS SHOULD GROW WHEN

1. Families' disposable income increases (especially if imported goods are "luxury"

goods, i.e. their demand grows more than proportionally when income rises);

2. GDP at large increases, where an elasticity of 1 is often supposed, so that an increase

of 5% in GDP corresponds to an increase of 5% in import (5%/5% = 1);

3. Consumption, investment, exports and public expenditure rise, where different

elasticity of imports to GDP components may reasonably appear;

4. A revaluation takes place and national currency rises against foreign ones;

5. Inflation abroad is lower than domestically, so that foreign products become cheaper

and cheaper;

6. With the widening technological and quality gap of domestic production in

comparison to foreign one, also in the perception and in the requests of domestic

buyers;

7. A nationalistic tone in the demand is replaced by a "foreign is better" general opinion,

spread both throughout consumers and decision-makers of distribution channels

(supermarkets).

8. A domestic left shift of supply or a right shift in demand, provided that the realistic

description of the market can be offered by a standard neoclassical model;

9. Integration with other countries grows; a stronger national specialization takes place

and the world get more and more interdependent.

8) NEED OF IMPORT

The motivation for a country to import goods and services from other countries is perhaps

less obvious than its motivation for selling exports (making a profit on goods not consumed

by the domestic market). As with exports, the purposes served by imports vary from country

to country.

Yet no country today can be totally self-sufficient without suffering a high cost. All countries

need to—or choose to—import at least some goods and services for the following reasons:

1) Goods or services that are either a. essential to economic well-being or b. highly attractive

to consumers but are not available in the domestic market.



2) Goods or services that satisfy domestic needs or wants can be produced more

inexpensively or efficiently by other countries, and therefore sold at lower prices.

Generally speaking, countries import goods primarily to satisfy a demand for the good that is

not produced within it. For example, an industrialized country may import agricultural

products, while an industrializing country may import high-value consumer electronics.

Countries may also import goods in order to provide consumers with greater variety, and

increase competition in the local market.

From an economic standpoint, increased competition is usually favorable as it tends to

improve the quality of goods and services, while lowering its market price.

There are number of supporting reasons why import business and services is growing at such

a fast rate, three of them are given below:-

i. Availability: An individual or business man or an importer needs to import because

there are certain things that he can’t grow or manufacture in his home country. For

example Bananas in Alaska, Mahogany Lumber in Maine and Ball Park franks in

France.

ii. Cachet: A lot of things, like caviar and champagne, pack more cachet, more of an

"image," if they're imported rather than home-grown. Think Scandinavian furniture,

German beer, French perfume, Egyptian cotton. It all seems classier when it comes

from distant place.

iii. Price: Price factor is also an important reason for import of products. Some products

are cheaper when imported from foreign country. For example Korean toys,

Taiwanese electronics and Mexican clothing, to rattle off a few, can often be

manufactured or assembled in foreign factories for far less money than if they were

made on the domestic country.



9) BARRIERS TO INTERNATIONAL TRADE

The main objectives of imposing trade barriers are to protect domestic industries from foreign

competition, to guard against dumping, to promote indigenous research and development, to

conserve the foreign exchange resources of the country, to make the balance of payments

position more favorable, and to discriminate against certain countries.

Trade barriers may be broadly classified into tariff and non-tariff barriers

TARIFF BARRIERS

Tariff derived from a French word meaning rate, price, or list of charges, is a customs duty or

a tax on products that move across borders. Tariffs can be classified in several ways. The

classification scheme used here is based on direction, purpose length, rate, and distribution

point. These classifications are not necessarily mutually exclusive

1 Direction: Import and Export Tariffs

Tariffs are often imposed on the basis of the direction of product movement, which is, on

imports or exportwith the latter being the less common one. When export tariffs are levied,

they usually apply to an exporting country’s scarce resources or raw materials. Companies

exporting from Russia must pay an average export tariff of 20 percent on a number of goods

sold in cash transactions and an average export tariff of about 30 percent for goods sold in

noncash transactions.

2 Purpose: Protective and Revenue Tariffs

Tariffs can be classified as protective tariffs and revenue tariffs. The distinctionis based on

purpose. The purpose of a protective tariff is to protect home industry, agriculture, and labor

against foreign competitors by trying to keep foreign goods out of the country.

The purpose of revenue tariff, in contrast, is to generate tax revenues for the government.

Compared to a protective tariff, a revenue tariff is relatively low.



3 Length: Tariff surcharge Versus Countervailing Duty

Protective tariff can be further classified according to length of time. A tariff surcharge is a

temporary action, whereas a countervailing duty is a permanent surcharge. Countervailing

duties are imposed on certain imports when products are subsidized by foreign governments.

These duties are thus assessed offset a special advantage or discount allowed by an exporter’s

government. Usually, a government provides an export subsidy by rebating certain taxes if

goods are exported.

4 Rates: Specific, Ad Valorem and Combined

A specific duty is a flat sum per physical unit of the commodity imported or exported, thus a

specific import duty is a fixed amount of duty levied upon each unit of the commodity

imported. Ad-valorem duties are levied as a fixed percentage of the value of commodity

imported/exported. Thus, while the specific duty is based on the quantum of commodity

imported/exported, the ad-valorem duty is based on the value of the commodity

imported/exported.Combined rates or compound duty are a combination of specific and ad

valorem duties on a single product. They are duties based on both the specific rate and the ad

valorem rate that are applied to imported products.

5 Distribution Point: Distribution and Consumption Taxes

Some taxes are collected at particular point of distribution or when purchases and

consumption occur. These indirect taxes, frequently adjusted at the border, are of four kinds:

single stage, value added, cascade and excise.

Single-stage sales tax is a tax collected only at one point in the manufacturing and

distribution chain. The tax is perhaps most common in the United States, where retailers and

wholesalers make purchases without paying any taxes simply by showing a sale tax permit.

The single-stage sales tax permit. The single-stage sales tax is not collected until products are

purchased by final consumers.

A value-added tax (VAT) is a multistage, noncumulative tax on consumption. It is a

national sales levied at each stage of the production and distribution system, though only on

the value added at that stage. In other words, each time a product changes hands, even

between middlemen, a tax must be paid. But the tax collected at certain stages is based on the



added value and not the total value of the product at that point. Sellers in the chain collect the

VAT from a buyer, deduct the amount of VAT they have already paid on their purchase of

the product, and remit the balance to the government.

The VAT is supposed to be non- discriminatory because it applies to both products sold on

the domestic market and imported goods. The importance of VAT is due to the fact that

GATT allows a producing country to rebate the VAT when products are exported. Since the

tax implies to imports at the border but because it is fully rebated on exports, the VAT may

improve a country’s trade balance.

Cascade taxes are collected at a point in the manufacturing and distribution chain and are

levied on the total value of a product, including taxes borne by the product at earlier stages.

Of the tax systems examined, this appears to be the most severe of them all.

An excise tax is one-time charge levied on the sales of specified products. Alcoholic

beverages and cigarettes are good example.

10) IMPACT OF TARIFF

Tariffs effect on economy in different ways. An import duty generally has the following

effect:

i. Protective Effect

An import duty is likely to increase the price of imported goods. This increase in the

price of imports is likely to reduce imports and increase the demand for domestic

goods. Import duties may also enable domestic industries to absorb higher production

costs. Thus, as a result of the production accorded by tariffs, domestic industries are

able to expand their output.

ii. Consumption Effect

The increase in prices resulting from the levy of import duty usually reduces the

consumption capacity of the people.

iii. Redistribution Effect

If the import duty causes and increases in the price of domestically produced goods, it

amounts to redistribution of income between the consumers and producers in favor of



the producers. Further, a part of the consumer income is transferred to the exchequer

by means of the tariff.

iv. Revenue Effect

As mentioned above, a tariff means increased revenue for the government (unless, of

course, the rate of tariff is so prohibitive that it completely stops the import of the

commodity subject to the tariff).

v. Income and Employment Effect

The tariff may cause a switchover from spending on foreign goods to spending on

domestic goods. This higher spending within the country may cause an expansion in

domestic income and employment.

vi. Competitive Effect

The competitive effect on the tariff is, in fact, an anti-competitive effect in the sense

that the protection of domestic industries against foreign competition may enable the

domestic industries to obtain monopoly power with all its associated evils.

vii. Term of Trade Effect

In a bid to maintain the previous level of imports to the tariff-imposing country, if the

exporter reduces his prices, the tariff-imposing country is able to get imports at a

lower price. This wills, ceteris paribus; improve the terms of trade of the country

imposing the tariff.

viii. Balance of Payments Effect

Tariffs, by reducing the volume of imports, may help the country to improve its

balance of payments position.



11) NON-TARIFF BARRIERS

Tariffs, though generally undesirable, are at least straightforward and obvious. Non-tariff

barriers, in comparison, are more elusive or nontransparent. Tariffs have declined in

importance, while nontariff barriers can be just as devastating, if not more, as the impact of

tariffs.

There are several hundred types of non-tariff barriers. These barriers can be grouped in five

major categories contain a number of different non-tariff barriers.

1 GOVERNMENT PARTICIPATION IN TRADE

The degree of government involvement in trade varies from passive to active. The types of

participation include administrative guidance, state trading, and subsidies.

i. Administrative Guidance

Many governments routinely provide trade consultation to private companies. Japan

has been doing this on a regular basis to help implement its industrial policies. This

systematic cooperation between the government and business is labeled “japan, Inc.”

To get private firms to conform to the Japanese government’s guidance, the

government uses a carrot-and-stick approach by exerting the influence through

regulations, recommendations, encouragement, discouragement, or prohibition.

ii. Government Procurement and State Trading

State trading is the ultimate in government participation, because the government

itself is now the customer or buyer who determine what, when, how, and how much to

buy. In this practice the state engages in commercial operations, either directly or

indirectly, through the agencies under its control. Such business activities are either in

place of or in addition to private firms. Although government involvement in business

is most common with the communist countries, whose governments are responsible

for the central planning of the whole economy, the practice is definitely not restricted

to those nations.

iii. Subsidies

According to GATT, “subsidy is a “financial contribution” provided directly or

indirectly by a government and which confers a benefit.” Subsidies can take many



forms including cash, interest rate, value-added tax, corporate income tax, sales tax,

freight, insurance, and infrastructure. Subsidized loans for priority sectors,

preferential rediscount rates, and budgetary subsidies are among the various subsidy

policies of several Asian countries.

There are several other kinds of subsidies that are not so obvious. Brazil’s rebate of

the various taxes, coupled with other form of assistance, can be viewed as subsidies.

Sheltered Profit is another kind of subsidy. A country may allow a corporation to

shelter its profit from abroad. The United States in 1971 allowed companies to form

domestic international sales corporation (DISCs) even though they cost the U.S.

treasury more than $1 billion a year in revenue.

2 CUSTOMS AND ENTRY PROCEDURE

Customs and Entry Procedures can be employed as nontariff barriers. These restrictions

involve classification, valuation, documentation, license, inspection, and health and safety

regulations.

i. Classification

Product Classification is important because the way in which a product is classified

determines its duty status. A company can sometimes take action to affect the

classification of the product. In the United States, if an imported product is

determined to have the acceptable minimum percentage of materials produced in a

designated country, it can be classified by a customs officer as having duty-free

status. Classification thus determines if certain product categories are qualified for a

special treatment, but it also determines whether some products should be banned

altogether.

ii. Valuation

Regardless of how products are classified, each product must still be valued. The

value affects the amount of tariffs levied. a customs appraiser is the one who

determines the value. The process can be highly subjective, and the valuation of a

product can be interpreted in different ways depending on what value is used (e.g.,

foreign, export, import, or manufacturing costs) and how this value is constructed.



iii. Documentation

Documentation requirements vary from country to country. Usually, the following

shipping documents are either required or requested: commercial invoice, proforma

invoice, certificate of origin, bill of lading, packing list, insurance certificate, import

license, and shipper’s export declarations. Without proper documentation, goods may

not be cleared through customs. At the very least, such complicated and lengthy

documents serve to slow down product clearance.

iv. License or Permit

The most common instruments of direct regulation of imports (and sometimes export)

are licenses or Permit. Almost all industrialized countries apply these non-tariff

methods. The license system requires that a state (through specially authorized office)

issues permits for foreign trade transactions of import commodities included in the

lists of licensed merchandises. Product licensing can take many forms and procedures.

The main types of licenses are general license that permits unrestricted importation of

goods included in the lists for a certain period of time; and one-time license for a

certain product importer (exporter) to import (or export). One-time license indicates a

quantity of goods, its cost, its country of origin (or destination), and in some cases

also customs point through which import (or export) of goods should be carried out.

The use of licensing systems as an instrument for foreign trade regulation is based on

a number of international level standards agreements. In particular, these agreements

include some provisions of the General Agreement on Tariffs and Trade and the

Agreement on Import Licensing Procedures, concluded under the GATT (GATT).

v. Inspection

Inspection is an integral part of product clearance. Goods must be examined to

determine quality and quantity. This step is highly related to other customs and entry

procedures. First, inspection classifies and values products for tariff purposes. Second,

inspection reveals whether imported items are consistent with those specified in the

accompanying documents and whether such documents require any licenses. Third,

inspection determines whether products meet health and safety regulations in order to

make certain that food products are fit for human consumption or that the products

can be operated safely. Fourth, inspection prevents the importation of prohibited

articles. Inspection can be used intentionally to discourage imports.



vi. Health and Safety Regulations

Many products are subject to health and safety regulations, which are necessary to

protect the public health and environment. Health and Safety Regulations are not

restricted to agricultural products. The regulations apply to TV receivers, microwave

ovens, X-ray devices, cosmetics, chemical substances and wearing apparel.

3 PRODUCT REQUIREMENTS

For goods to enter a country, product requirements set by that country must be met.

Packaging may apply to product standards and product specifications as well as to packaging,

labeling and marking.

i. Product Standards

Each country determines its own product standards to protect the health and safety of

its consumers. Such standards must also be erected as barriers to prevent or to slow

down importation of foreign goods. For e.g. because of U.S. grade, size, quality, and

maturity requirements, many Mexican agricultural commodities are barred from

entering the United States.

ii. Packaging, Labeling and Marking

Packaging, Labeling and Marking are considered together because they are highly

interrelated. Many products must be packaged in a certain way for safety and other

reasons. For e.g. Canada requires imported canned foods to be packed in specified can

sizes, and instructions contained within packages or on them must be in English and

French. Products must also be properly marked and labeled, and marking and labeling

may apply either to products themselves or to their packages.

iii. Product Testing

Many products must be tested to determine their safety and suitability before they can

be marked. This is the area in which United States has some troubles in Japan.

Although products may have won approval everywhere else for safety and

effectiveness, such products as medical equipment pharmaceuticals must go through

elaborate standards testing that can take a few years.

iv. Product Specifications

Product Specifications, though appearing to be an innocent process, can wreak havoc

on imports. Specifications can be written in such a way as to favor local bidders and



to keep out foreign suppliers. For example, specifications can be extremely detailed,

or they can be written to closely resemble domestic products. They can be used

against foreign suppliers who cannot satisfy their specification without expensive or

lengthy modification.

4 QUOTAS

Quotas are a quality control on imported goods. Generally, they are specific provisions

limiting the amount of foreign products imported in order to protect local firms and to

conserve foreign currency. Quotas can be used for export control as well. From a policy

standpoint, a quota is not as desirable as a tariff since a quota generates no revenues for a

country. The consequence of this trade barrier is normally reflected in the consumers’ loss

because of higher prices and limited selection of goods as well as in the companies that

employ the imported materials in the production process, increasing their costs. There are

three kinds of quotas: absolute, tariff and voluntary.

i. Absolute Quotas

An absolute quota is the most restrictive of all. It limits in absolute terms the amount

imported during a quota period. Once filled, further entries are prohibited. Some

quotas are global, but others are allocated to specific foreign countries. The most

extreme of the absolute quota is an embargo, or a zero quota, as in case of the U.S.

trade embargoes against North Korea.

ii. Tariff Quotas

A Tariff quota permits the entry of a limited quantity of the quota product at a reduced

rate of duty. Quantities in excess of the quota can be imported but are subject to a

higher duty rate. Through the use of tariff quotas, a combination of tariffs and quotas

is applied with the primary purpose of importing what is a needed and discouraging

excessive quantity through higher tariffs.

iii. Voluntary Quotas

A voluntary quota differs from the other two kinds of quotas which are unilaterally

imposed. A voluntary quota is a formal agreement between nations or between a

nation and an industry. This agreement usually specifies the limit or supply by

product, country, and volume. Two kinds of voluntary quotas can be legally

distinguished: VER(voluntary export restraint) and OMA(orderly marketing



agreement).Whereas a OMA involves a negotiation between two governments to

specify export management rules, the monitoring of trade volumes, and consultation

rights, a VER is a direct agreement between an importing nation’s government and a

foreign exporting industry.

5 FINANCIAL CONTROLS

Financial regulations can also function to restrict international trade. These restrictive

monetary policies are designed to control capital flow so that currencies can be defended or

imports controlled. There are several forms that financial restrictions can take.

i. Exchange Control

An exchange control is a technique that limits the amount of the currency that can be

taken abroad. The reason exchange controls are usually applied is that the local

currency is overvalued, thus causing imports to be paid for in smaller amounts of

currency. Purchasers then try to use the relatively cheap foreign exchange to obtain

items either unavailable or more expensive in the local currency.

Exchange controls also limit the length of time and amount of money an exporter can

hold for the goods sold. French exporters, for example, must exchange the foreign

currencies for francs within one month. By regulating all types of the capital outflows

in foreign countries, the government either makes it difficult to get imported products

or makes such items available only at higher prices.

ii. Multiple Exchange Rates

Multiple exchange rates are another form of exchange regulation or barrier. The

objective of multiple exchange rates is twofold: to encourage exports and imports of

certain goods and to discourage exports and imports of others. This means that there

is no single rate for all products or industries. But with the application of multiple

exchange rates, some products and industries will benefit and some will not. Spain

once used low exchange rates for goods designed for export and high rates for those it

desired to retain at home. Multiple exchange rates may also apply to imports. The

high rates may be used for imports of particular goods with the government’s

approval, whereas low rates may be used for other imports.



iii. Prior Import Deposits and Credit Restrictions

Financial barriers can also include specific limitations or import restraints, such as

prior import deposits and credit restrictions. Both of these barriers operate by

imposing certain financial restrictions on importers. A government can require prior

import deposits that make imports difficult by tying up an importer’s capital. In effect

the importer is paying interest for money borrowed without being able to use the

money or get interest earning on money from the government.

Credit restrictions apply only to importers, that is, exporters may be able to get loans

from the government, usually at very favorable rates, but importers will not be able to

receive any credit or financing from the government. Importers must look for loans in

private sectors- very likely at significantly high rates, if such loans are available at all.

iv. Profit Remittance Restrictions

Another form of exchange barrier is profit remittance restrictions. ASEAN countries

share a common philosophy in allowing unrestricted repatriation of profit earned by

foreign countries. Singapore, in particular, allows the unrestricted movement of

capital. But many countries regulate the remittance of profits earned in local

operations and sent to a parent organization located abroad. Brazil uses progressive

rates in taxing all profits remitted to a parent company abroad, with such rates going

up to 60 percent. Other countries practice a form of profit remittance restriction by

simply having long delays in permission for profit expatriation. To overcome these

practices, MNCs have looked to legal loopholes. Many employ the various tactics

such as countertrading, currency swaps, and other parallel schemes. For example, a

multinational firm wanting to repatriate a currency may swap it with another firm that

needs that currency. Or these firms may lend to each other in the currency desired by

each party.

Another tactics is to negotiate for a higher value of an investment than the

investment’s actual worth. By charging its foreign subsidiary higher prices and fees,

an MNC is able to increase the equity base from which dividend repatriations are

calculated. In addition, compared to profit repatriations, the higher prices and fees are

treated as costs or expenses and are thus more freely paid to the parent firm.



12) REFERENCES

[1.] www.economywatch.com

[2.] www.businessinsider.com

[3.] www.wikipedia.org

[4.] www.wto.org

[5.] International Business by Donald A. Ball and Michael S. Minor.

[6.] Building an Import by Kenneth D. Weiss


http://www.wikipedia.org/

Need & barriers of import

Business

Transcript of Need & barriers of import