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Discussion Assignment Instructions

MY KEY TERM IS INTERNATIONAL TRADE. i have attached the textbook as well (Please follow the question format and number all answers

QUESTION

Thread (600 words minimum)

After you have successfully chosen the key term that interests you the most, research a minimum of 5 recent international business/management articles that relate to the concept on which you wish to focus your research. Articles must be found in reputable professional and/or scholarly journals and/or business/trade journals that deal with the content of the course (i.e., not blogs, Wikipedia, newspapers, etc.). After reading the articles, select the 1 article that you wish to discuss.

1. Key Term and Why You Are Interested in It (100 words minimum)

After reading the textbook, specifically state why you are interested in conducting further research on this key term (e.g., academic curiosity, application to a current issue related to employment, or any other professional rationale). Include a substantive reason, not simply a phrase.

2. Explanation of the Key Term (100 words minimum)

Provide a clear and concise overview of the essentials relevant to understanding this key term.

3. Major Article Summary (200 words minimum)

Using your own words, provide a clear and concise summary of the article, including the major points and conclusions.

4. Discussion

In your own words, discuss each of the following points:

a. How the cited work relates to your above explanation AND how it relates specifically to External Environments, Risk, and Global Trade and Investment.

This part of your thread provides evidence that you have extended your understanding of this key term beyond the textbook readings. (100 words minimum)

b. How the cited work relates to the other 4 works you researched. This part of your thread provides evidence that you have refined your research key term to a coherent and specialized aspect of the key term, rather than a random selection of works on the key term. The idea here is to prove that you have focused your research and that all works cited are related in some manner to each other rather than simply a collection of the first 5 results from your Internet search. (100 words minimum)

5. References

A minimum of 5 recent articles (as described above), in current APA format, must be included and must contain persistent links so others may have instant access. In

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Political and Legal Environment

Why Governments Intervene in Global Trade

International trading is very important to a nation because it generates business
and government revenue and promotes varying levels of trust between trading
partners. These levels of trust can have both positive and negative outcomes. Some
nations are better suited for producing certain products/ services that other
countries may demand. Nations profit by trading with other nations better suited to
producing products in demand. On the other hand, governmental disagreements
may lead to embargoes and the cessation of international trade between the
countries’ businesses. Consumers are the main beneficiaries of trade, which also
makes them the primary victim of embargoes. Consumers will have to pay higher
prices for hard-to-find items if their government imposes an embargo on a country

that is the main producer of the item.1

Political Issues That Significantly Impact Global
Business

Governments may also intervene in order to protect their domestic market. A
developing market is not ready to fully engage in international trading on its own
and may require the protection of the government. On the other hand, domestic
businesses may be ready to begin trading in the international market; however, they
may not have the finances needed to undertake the endeavor. Consequently, some
government agencies may choose to financially assist their domestic businesses in
order to spur the whole nation’s economic growth.

Governments are also aware of trade deficits that may develop between nations. A

trade deficit occurs when a country is importing more than it is exporting. The

Government intervention in trade

Government promotion of trade

Government restriction of trade

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government has the responsibility of ensuring that extreme deficits are monitored
and corrected. If a trade deficit becomes excessive, then the government must
correct the deficit before the entire nation’s economy is at risk of faltering.

Government Actions that Promote Global Trade
Whether motivated by the desire to improve standards of living for its citizens, the
protection of domestic industries, or the management of trade deficits, a number of
options are available for governments to promote cross-border trade. These include
special government agencies, subsidies, export financing assistance, and foreign
trade zones.

Actions that Promote Trade

Special government agencies

Subsidies

Export Financing

Foreign Trade Zones

Special Government Agencies

In 1995, as business and policy makers alike saw the potential growth of global
business, the World Trade Organization (WTO) was created by several countries in
order to monitor global trade. Since then many other nations have formed regional
trade agreements such as the North American Free Trade Agreement (NAFTA)
and the European Union (EU), to promote regional trade in their respective areas.

The U.S. Department of Commerce developed the International Trade
Administration (ITA) in order to stimulate economic opportunities for U.S.
businesses and their employees. Specifically, the ITA assists U.S. companies in
navigating foreign markets by teaching them about marketing, financing, logistics,
etc. Consequently, the U.S. Commercial Service was developed to oversee and

promote international trade.2 The ITA has placed many offices in the U.S. and
numerous other nations in order to continue to encourage international trade.

Most U.S. states have developed special government agencies to partner with
constituent companies to do business overseas. The Virginia Economic
Development Partnership has created the Division of International Trade. This
division has developed multiple programs and services to assist both manufacturing
and service firms, located within the state, to increase their exports. Services
include operating overseas state offices, conducting overseas trade missions,
providing a resident subject-matter expert, and advice and counseling at all levels in
the exporting process. The astute global-business professional should take full
advantage of these services and programs utilizing both federal and state special
government agencies to expedite and supplement their global business presence.

Subsidies

Subsidies are special privileges offered by the government in order to attract
businesses to a region or to provide them with the funding to operate successfully.
A nation’s government may provide tax breaks, lower the cost of required land, or
offer other money-saving techniques to businesses that it wishes to attract or

maintain in a region.3 Providing subsidies may allow a region to acquire a company
that will bring more jobs to the area, thus increasing productivity and strengthening
the economy. These subsidies are designed to attract overseas firms and their
foreign direct investment into the local government’s economy. This type of subsidy
should not be confused with those subsidies that the government frequently offers
to domestic firms in an effort to protect local industries from the effects of free
trade and world-wide competition. Foreign investment funding and other outside
resources have greater potential to elevate local economic well-being than money
that merely circulates within a local economy.

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Export Financing

Export financing differs from commercial lending, mortgage lending, or
insurance. A company increases payment time when it sells and ships a product
overseas. This type of transaction requires extra time and energy, to make sure that
buyers are reliable and creditworthy. Foreign buyers—just like domestic
buyers—prefer to delay payment until they receive and resell the goods.
Due diligence and careful financial management can mean the difference between
profit and loss on each transaction. Diligence in management is especially
important for small businesses engaged in exporting, as these organizations may

need government assistance in obtaining finances for export activities. The Export-
Import Bank (Ex-Im Bank) is the official export credit agency of the United States.
The Ex-Im Bank is a valuable tool for small businesses because it does not require a
minimum transaction limit. Using an organization to finance the cost of the
exported goods will allow all parties involved to have more time to gather the

finances needed to complete the transaction.4

Other institutions that operate underneath government agencies, private

companies, or general organizations are available to finance exports.5 Export credit
institutions, export banks, and export finance institutions specialize not only in
financing exports but also in circulating capital and providing insurance on the
items being traded. Two forms of credit are associated with export financing. The

first is the supplier’s credit where a loan in which the exporter is covered, but the
value of the cover will be less than the value of the contract. The second form is

buyer’s credit, which is more closely associated with long-term loans. Some
international projects may take more than four years to complete; therefore, the
financial institution needs the importer’s credit to protect parties from potential
problems that might arise during this extended time period.

While many governments have created institutions that oversee export finances,
some allow the private sector to control its own financing. Because governments
have different economic policies, some government-controlled credit institutions
may not be successful or required. However, newly emerging governments could

take advantage of financing agencies in order to assist their business community in
the creation and maintenance of sustainable global trade. Financing can help
protect businesses from potential losses by providing them with insurance against
political and commercial risks while also increasing their international business
confidence.

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Foreign Trade Zones

The United States’ capitalistic economy allows citizens to engage in a free-trade
system within the country and with other countries that operate under the free-
trade model. Operating under a free-trade model provides many benefits; but as

with any model, the costs can be significant. The Foreign-Trade Zones (FTZ)
program alleviates some of the costs associated with free trade in the rapidly
increasing global economic environment.

The Foreign Trade Zones program was created with the enactment of the U.S.

Foreign- Trade Zones Act of 1934.6 This program was created during a defining
moment of American history when Americans were beginning to open doors to
foreign policy, as well as, to foreign business opportunities. U.S. policy makers
hoped to encourage foreign commerce in order to spur the declining U.S. economy.
The United States designated certain areas “Customs Ports of Entry” where
commercial merchandise would “receive the same customs treatment it would if it
were outside the commerce of the United States. Merchandise of every description
may be held in the Zone without being subject to Customs duties and other ad

valorem taxes.”7 These zones are supervised by the U.S. customs service through
audit-inspection checks.

During the 1950s and 1960s the global trade environment underwent tremendous
change. Tariff barriers were continually reduced, and international trade began to
flourish. However, as more countries began to open their doors to international
trade, unexpected costs hidden within the free trade system became apparent. Each
country was attempting to gain as much profit as possible while spending less on
imported goods. Countries spent much time deliberating on trade negotiations so
that all countries involved could reap the benefits of international trade. In order to
ensure the prosperity of all parties involved in global trade the National
Association of Foreign Trade Zones (NAFTZ) was created in 1972. In 1980 the
U.S. Customs Service issued a new ruling that allowed U.S. based
manufacturers to bring foreign-sourced parts into free-trade zones without
paying extra duties. This act, coupled with the continued increase in global trade,

greatly spurred the U.S. economy and the U.S. Foreign-Trade Zones program.
More than 230 Foreign-Trade Zone projects and nearly 400 sub-zones currently
exist within the United States.

FTZs offer numerous benefits to manufacturers and distributors in the United
States. Organizations investigate overseas options when deciding to locate or
expand a new manufacturing or processing facility. Such location and expansion
decisions must take into account all costs of manufacturing in a certain nation. As
do most other nations, U.S. law may have unintended import tax penalties for firms
located, or considering locating, in the United States. The FTZ program plays an
important role in providing a level playing field when investment and production
decisions are made. While the U.S. government might incur a reduction in
Customs duty revenue through the FTZ program, these reductions are offset by the
income taxes from created or existing jobs. In addition, local governments benefit
from sales and property taxes.

Government Actions that Restrict Trade
Governments may attempt to restrict trade with other countries especially in
circumstances of large trade deficits or excessive currency outflows. Such actions
may result in protectionism—when a nation deliberately reduces the number of
imports it receives. As with any government action, advantages and disadvantages
may accrue. Common forms of government actions that restrict trade include, but
are not limited to, tariffs, quotas, and embargoes.

Tariffs, Quotas, and Embargoes

A tariff is a tax applied to selected categories of imports. Governments design
tariffs to raise revenues and to generally provide a competitive advantage for
domestic businesses. Tariffs are similar to excise taxes (taxes on cigarettes and
alcohol, for example) in design and economic impact. Governments design tariffs,
which they normally impose as a fixed percentage of the value of imports, to
discriminate against selected imports by raising the price of imports relative to
domestic prices for the same products. The tariff or duty is collected at the
product’s point of entry into a country. Since World War II, multilateral trade
negotiations under the General Agreement on Tariffs and Trade (GATT) have
resulted in large reductions in tariff and non-tariff barriers to international trade. A
guiding principle for increasing international trade for goods and services has been
the eventual elimination of all tariffs on imports.

Government Actions that Restrict Trade

Governments use quotas, also known as quantitative restrictions, to limit the
quantity of imports allowed into a nation. Quotas typically “raise the price of
imports, reduce the volume of imports, and encourage demand for domestically

made substitutes.”8 Quotas and tariffs are similar in that their general purpose is to
control the number of imports that enter a domestic market. While tariffs generate
money for the government, because they are essentially an import tax, quotas can

Tariffs

Local content Requirements

Quotas

Embargoes

Administrative Delays

Currency Controls

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have some negative effects on a government. Quotas place power in the hands of

customs officials. These officials determine which nations will be allowed to
import goods into the domestic system while denying other nations because no
room exists for their products. This refusal can cause a nation to become
disgruntled with the government of the nation in which they are trying to import
their goods. Customs officials may even choose a favorite exporter, rather than
importing goods on an equal level. Such corruption may be harmful to a country’s
economy, as well as its foreign relations.

Tariffs and quotas may increase smuggling activity. If the quota is extremely low or
if a tariff is unreasonably high, smugglers may attempt to push goods through a
country’s borders without paying the proper taxes. The incidence of smuggling may

then be reduced by lowering the tariff while still collecting revenue from the taxes.9

Embargoes are economic and trade sanctions against targeted foreign countries,
groups, organizations, and individuals. Embargoes can be motivated by political,
economic, or moral reasons. The United States Department of the Treasury
oversees and enforces all U.S. economic sanctions through the Office of Foreign
Assets Control (OFAC). The following reveals some of the purposes behind
embargoes:

Punishing a country or group for unacceptable behavior

Influencing the behavior of the target

Signaling disapproval of a government’s or group’s behavior

Warning the target nation that harsher measures could follow

Limiting a target’s freedom of action

Denying resources or technology

Increasing the cost of engaging in unacceptable behavior

Drawing international attention to unacceptable behavior

Challenging allies to take more forceful action themselves in support of
common objectives

The various methods of imposing economic sanctions include the following:

Signaling to a government or group that is engaging in practices which violate
core values that a “business-as-usual” approach is not acceptable

Protecting the assets of allies from hostile actions

Assuring that the assets of targets will be available to meet future claims

Limiting exports and re-exports to the targets (including exports to third
countries predominantly for use in products for the targets)

Limiting imports from the targets

Blocking assets of the targeted country, company or individual

Restricting investments in the targets

Prohibiting private financial transactions

Restricting government trade financing and investment assistance regarding the
target

Local Content Requirements

Local content requirements are means by which governments can block open
trade within a country’s borders. These requirements can hinder foreign exports
from reaching a nation or from being purchased in the domestic market and place
restrictions on domestic businesses. Local content requirement is a popular
government policy in developing countries to regulate foreign direct investment.
The World Trade Organization is striving to eliminate local content requirements,
so that the global market may profit from free trading. However, the WTO has not

yet been completely successful in its efforts.10

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Administrative Delays

Administrative delays impose a waiting period between the determination of a
product’s quality and the determination of when it can actually be sold in a market.
This prohibits the producer of the product from improving the quality of the
product during the waiting period. This delay causes the producer to miss an
opportunity to gain profits. Furthermore, administrative delays do not provide any
extra revenue to the nation that imposes the delay—they do not bring in any extra

revenue aside from the standard tariff.11 If a popular item becomes available in
other nations while in administrative delay, then smugglers may attempt to
introduce the item into the country’s economy further hurting the country’s
revenue from the tariff. If the delay is excessive, the demand for the new item may
decrease by the time the item makes the shelves of the importing country.
Both countries would lose profits in this scenario. Administrative delays
have the potential to be harmful to all parties involved.

Currency Controls

Some governments practice strict control over their currency. Currency control is
a system whereby a nation attempts to regulate the value of its own money within
its borders. From simple to complex policy changes, such government initiated
systems attempt to control currency fluctuations through the regulation of interest
rates, bonds, laws, money printing, and many more. Nations that lack adequate
currency control tend to experience hyper-inflation or depression.

Types of Law
The astute global business professional understands the impact of political issues
and regulations on commerce. In addition to the political issues, a keen awareness
of the legal aspects of doing business overseas is essential for success. Legal aspects
of international business focus on the types of laws and legal issues used across
nations and borders. The basic legal issues include standardization of laws,
property rights, and copyrights.

Laws are essential to the efficient and effective operation of business
establishments and corporations within a society. They provide standard rules,
regulations, and protocols necessary for fairness and ethical treatments of
customers, employees, and suppliers. Each sovereign nation has the right to
establish laws that govern the conducting of business within its borders. Such laws
typically fall into one of three categories: common, civil, and theocratic.

Common Law

Common law was originally developed in historical England and is the result of
judicial decisions that were based in tradition, custom, and precedent. Common
law may be unwritten or written in statutes or codes. The common law as applied
in civil cases (as distinct from criminal cases), was devised as a means of
compensating someone for wrongful acts—known as torts—including both
intentional torts and torts caused by negligence, in order to develop the body of law
that recognizes and regulates contracts. In a common law system, an adversarial
approach is used to investigate and adjudicate guilt or innocence. The adversarial
system assumes that truth is most likely to result from the open competition
between the prosecution and the defense. Primary responsibility for the
presentation of evidence and legal arguments lies with the opposing parties, not
with a judge. Each side is acting in its self-interest and is expected to present facts
and interpretations of the law in a way most favorable to its interests. The approach
presumes that the accused is innocent, and the burden of proving guilt rests with
the prosecution. “Through counterargument and cross-examination each side is
expected to test the truthfulness, relevancy, and sufficiency of the opponent’s

evidence and arguments.”12

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Civil Law

Civil law has its origins in Roman law and is the predominant system of law in the
world. It sets forth a comprehensive system of rules that are usually codified then
applied and interpreted by judges. Historically, the original difference between
common law and civil law was that common law was developed by custom,
beginning before any written laws existed and continuing to be applied by courts
after they were written. Civil law developed out of Roman law. The difference
between civil law and common law is grounded in the methodological approach to
codes and statutes. Civil law nations view legislation as the primary source of law.
Courts base their judgments on the provisions of codes and statutes from which
they derive their particular solutions to cases. Courts must reason extensively on
the basis of general rules and principles of the code, often drawing analogies from
statutory provisions. By contrast in the common law system, cases are the primary
source of law while statutes are seen only as incursions into the common law and
interpreted narrowly.

Theocratic Law

Theocratic law refers to laws which are derived from religion. Due to the
numerous religions in the world (e.g. Christianity, Islam, Buddhism, and
Hinduism), nations find difficulty coming to agreements over theocratic laws.
Because of the increase in globalization within the marketplace as well as
communities, a common secular law is needed in order to ensure the prosperity of
international trade.

Standardization of Laws
Each nation has its own distinct set of laws that govern its people. While some
nations rely on civil law others focus on either common or theocratic law. As

globalization continues to grow, the efforts to form a set of standardized
international laws continue to increase. Theocratic law presents an especially
difficult challenge in global trade because of the wide variance of religious groups
in the world whose theocracies can vary greatly. Another issue with international
law is that ultimately an economically independent country can refuse to follow
international law without fear of economic sanctions. This refusal to observe
international law could become dangerous and potentially lead to physical war
between two nations. International laws will be difficult to enforce unless all
participants can come to an agreement on the laws and appoint a governing body
to settle disputes.

A widely used tool in law and development programs is the supply of well-designed
laws from the outside. This method of law development has now been embraced by
international organizations as a way to improve the legal framework for global
markets. The International Monetary Fund (IMF) has endorsed attempts by
various organizations to develop legal standards with special emphasis on
corporate and financial institution laws. “The common idea behind these attempts
is that the supplied laws once incorporated into domestic legal systems will

improve the existing legal framework, furthering economic development.”13

Property Rights

Protecting property is an important part of promoting the global trade. Trade,

simply put, is the trading of property in order to receive monetary value. Property
can be classified as both physical and intellectual. Ideas spur innovation which
spurs the development of new goods that will be available for trade. The World
Trade Organization (WTO) allows for a minimum level of property rights to
provide its members with a global standard of protection.

Issues Covered by the The WTO’s System of
Property

Intellectual property. The WTO defines intellectual property rights as “the rights
given to persons over the creations of their minds. They usually give the creator an

exclusive right over the use of his/her creation for a certain period of time.”15

Examples of intellectual rights include patents, trademarks, and copyrights.

How basic principles of the trading system and other inter-

national, intellectual property agreements should be applied.

How to give adequate protection to intellectual property rights.

How countries should enforce those rights adequately in their own

territories.

How to settle disputes on intellectual property between members

of the WTO.14

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Industrial Property. Industrial property rights protect specific signs and
trademarks that distinguish specific goods and services from other goods and
services.

The property on a trademark can last as long as the trademark is easily
distinguishable. Patents protect individuals who are in the process of
creating a new invention. Individuals can receive a patent protection for

approximately twenty years.16 This protection allows the individual enough time to
develop the product into a working invention without the threat of competition.
After the patent expires, other persons or companies may attempt to reproduce a
similar product.

Copyrights

Copyrights are a form of intellectual property rights designed to encourage and
reward creative intellectual work by protecting the author’s work. Copyrights
protect the rights of authors in regards to literary and artistic works. These works
include all books, songs, compositions, paintings, films, and computer programs.
Authors are protected by copyright for at least seventy years after their death. The

modern copyright system can be traced back to the Berne Convention (1886).
The Berne Convention provides a minimum protection of property rights that are
independent of the nation in which the work originated. The agreement made at
the Berne Convention protects the artistic domain of authors in regards to literary
works, such as novels, songs, and compositions. The following is a list of rights
authorized for protection by the Berne Convention:

The right to translate

The right to make adaptations and arrangements of the work

The right to perform in public dramatic and musical works

The right to recite in public literary works

The right to communicate to the public the performance of such works

The right to broadcast (with the possibility of a contracting State to provide for
a mere right to equitable remuneration instead of a right of authorization)

The right to make reproductions in any manner or form (with the possibility of
a contracting nation to permit, in certain special cases, reproduction without
authorization, provided that the reproduction does not conflict with the normal
exploitation of the work and does not unreasonably prejudice the legitimate
interests of the author; and with the possibility of a contracting State to provide,
in the case of sound recordings of musical works, for a right to equitable
remuneration)

The right to use the work as a basis for an audiovisual work, and the right to
reproduce, distribute, perform in public, or communicate to the public that

audiovisual work17

The Berne Convention allows authors to possess moral rights in which they can
object to anyone using their work in a manner that would dishonor the reputation

of the author.18