Protectionism and Free Trade Flashcards
Define Export Promotion
Measures taken by governments to increase the production of goods and services that can be exported
What are the 3 methods of export promotion
Incentives
Subsidies
Indirect Subsidies
What are 4 examples of export incentives
Information on export markets
Research about new markets
Concessions of transport charges
Publicity commending successful exporters
What are 4 Characteristics of direct subsidies
Direct because it involves government expenditure
Includes cash payments to exporters, refunds on employment tariffs and employment subsidies
Reduces the cost of production
Increases the competitiveness of the exporting company
What are indirect subsidies
Regarded as indirect because it involves the government receiving less revenue
Allows companies to lower their prices and enables them to compete in international markets
Give 3 examples of indirect subsidies
General tax rebates
Tax concessions on profits earned
Custom duties on imported goods used in production
How can Trade Neutrality be achieved
If incentives in favour of export production are introduced up to a point that neutralises the impact of protectionist measures in place
E.g. Subsidies is equal to import tariffs
What is an Export Processing Zone
A free-trade enclave within a protected area. It is a fenced and controlled industrial park that falls outside the domestic customs area.
Usually located near a harbour or airport
What are the 3 reasons for export promotion
Lowers cost of production
Achieve significant export-led economic growth
Enlarges production capacity of a country
What are the 8 advantages of export promotion
No limitations of size and scale
Based on cost and efficiency of production and organised along the lines of comparative advantage
Increase in exports will permit more imports
Exchange rates are realistic and there is no need for exchange control
Value can be added to the natural resources of the country
Create employment opportunities
Increase in exports have a positive effect on BoP
Increase in production leads to lower domestic prices
What are the 7 disadvantages of export promotion
Real cost of production
Lack of competition
Increased tariffs and quotas
Protection of labour-intensive industries
Withdrawal of incentives leads to closure of affected companies
Incentives lead to inefficiencies in the production process
Can be seen as dumping
What is import substitution
A process whereby goods that were previously imported, are now replaced by local manufacturing
What are the 6 methods to encourage import substitution
Tariffs
Quotas
Subsidies
Exchange controls
Physical controls
Diverting trade
What are Tariffs
Taxes levied on imported goods to deliberately increase the price of imported goods
What are the two types of tariffs
Ad Valorem Taxes - Percentage levied on the value of the imported goods
Specific tariffis - An amount per unit, mass or quantity that is levied on imported gods
