The Trade Policy Debate:

Export Promotion, Import Substitution and International trade Blocs

Presenters: Group-H
Sl No

Name

1
2
3
4
5
6
7
8
9
10

Md. Rasel
Adnan Hossain
Showkhin
Md. Habibullah
Shoptorshe Paul
Partha Sarker
Md. Rakib Hasan
Shahdat Hossain
Norul Afsar
Saiful Islam Raju

Roll No

140602015
140602018
140602032
140602034
140602039
140602052
140602069
1406020
1406020
1406020

EXPORT PROMOTION

MEANING OF EXPORT PROMOTION

MEANING OF EXPORT
The commodities (goods & services) sold to a foreign country
is called export.
MEANING OF PROMOTION
Encouragement of the progress, growth or acceptance of something.
MEANING OF EXPORT PROMOTION
Refers to the policy of the govt. that offers encouragement to the
exporters with a view to enhance
the exports of the country.
Export promotion: looking outward and seeing trade barriers
primary-commodity
expanding

export expansion

manufactured good exports

OBJECTIVES OF EXPORT PROMOTION

To promote & develop the exports of the country

Each council is responsible for the promotion of a

particular group:

1.

Products

2.

Projects

3.

Services

4.

Assistance

Assists members in taking advantage of

opportunities

Helps in expansion & diversifying exports

Problems of the Export Promotion

Productio
n
problems

Neglect of
other
factors than
price

Trading
problem
s

Wasteful
formalities
Wrong
focus

Problems of the Export Promotion CONT

Neglect

of other factors than price

Other factors like quality of product

Ability of the exporters

Delivery schedule & other imp factors are more imp

influencing foreign buyers

Wasteful

formalities

Availing of promotional measures & procedural

formalities are long, complicated & time consuming

Wrong

focus

We often focus on selected products

Other products should be promoted

Problems of the Export Promotion CONT

Trading

problems

Developing countries find problems due to tarrifs

Tarrif rates become higher as one moves from

raw material to manufactured products

Production

problems

Lack of sophisticated technology

Inspite of changes in industrial & trade policy

Indian firms continue to produce outdated
products by outdated technology

EXPORT PROMOTION POLICIES

Cash
compensatory
support

Duty
drawbac
k
system

Advance
d
license
& duty
exemption
scheme

Replenis
h-ment
licenses

Organizational
structure
for export
promotion

Export

ORGANISATIONAL STRUCTURE FOR EXPORT

PROMOTION
Government

built up various organizational

structures to promote exports such as:

EPCs
Commodity
The

Boards

Trade development authority

Indian
Trade

Institute of Packaging

Fair Authority of India

Advantages

Increase sales, market

Lower per unit cost

Diversification

Expand life cycle of

share and profit

the product

Disadvantages

Extra cost

Financial risk

Product adaptation

Lack of market information

IMPORT SUBSTITUTION

IMPORT SUBSTITUTION

Import substitution is a trade policy aimed to promote

economic growth by restricting imports that competed with
domestic products in developing countries.

The import substitution approach substitutes externally

produced goods and services with locally produced ones.

Import substitution can also be discussed as a policy strategy

that attempts to utilize underused capacities, reduce regional
unemployment or protect infant industries.

Import substitution: looking inward but still paying outward

tariffs,

infant industries, and protection

OBJECTIVES OF IMPORT SUBSTITUTION

Promotion

of Domestic Industry

Employment
Promotion
Production

Generation

of Industrialization
of consumers goods

Improvement

in Balance of Payment

IMPORT SUBSTITUTION

GROWTH AND DEVELOPMENT

Growth

can be thought of as expanding the size of

the community through the use of land and other
natural resources.

Development,

on the other hand, can be thought of

as improving liveability through, jobs, education,
cultural preservation, public safety, and sense of
community.

Fortunately,

there exist ways for communities to

develop without growing. One of those ways is
through Import Substitution.

IMPORT SUBSTITUTION

Protection
Protection

Inefficiency

Protection

Foreign Ownership Profits Remitted

MDC Technologies High Capital Intensities

Little benefit to abundant labor / Limited learning

Copy

Import

capital goods weak backward linkages

Forward

linkages penalized: Brazilian computers for

Brazilians.

Protection

Overvaluation

Traditional
Capital

exports hurt urban vs. rural bias

intensity further encouraged

Protection

Protection

How?
Run

down reserves / borrow more reserves

Reduce
Ration

imports via tariffs and NTBs

available foreign exchange

Dual

exchange rates / preferred customers/ rent

seekers

Why not?
Hurt

exporters: reduced sales / reduced value of

proceeds

Nation

lives beyond means temporarily

Eventual

sharp devaluation:

Prices CoL WagePrice Spiral

Worsened B of P Currency Crisis

Import

Tariff Structures and Effective Protection

The nominal tariff rate, t, is

p p
t
p
Where
p is the tariff-inclusive price
p is the free trade price

Tariff Structures and Effective Protection

The effective tariff rate, g, is

Where
v is the value added per unit of
output,
inclusive of the tariff
v is the value added per unit of
output
under free trade

UNDERSTANDING THE LOCAL ECONOMY

leaky bucket model
Money

circulates within the region when money that is

earned locally is also spent locally. This requires that
some money exists in the bucket to begin withone way this happens is when local goods and services
are purchased by consumers outside the region.
Another source of inflow comes from businesses which
decide to set up shop locally and generate jobs that pay
local workers.

The

leak in the bucket that allows money to escape

from the community is created when goods and services
from outside the region are purchased with local money.

UNDERSTANDING THE LOCAL ECONOMY Cont...

Plugging the Leaks
One

way to prevent money from leaving the local economy is to

connect local demand for goods and services with the local suppliers
of those goods and services.

Many

of the things that individuals or businesses need

can be found from suppliers within the area but, due to

lack of adequate information or convenience, those
things are often purchased from the outside. This
represents another flow of capital leaving the system.

By substituting demand for externally produced things with locally

produced things, communities can retain capital for use within the
community.

MEASURES FOR IMPORT SUBSTITUTION

Import

Licenses: - Import license is an important

instrument. There can be a large variety of licenses- for
users or for wholesalers they can be obtained by direct
permission from some ministry or the central bank. They
can be combined with specific import programs and they
might be combined with lists of prohibited import products.

Guarantee

Deposits: - Other means are guarantee

deposits which have to be made by the importer for the
right to import an item. Foreign firms can be restricted in
their right to repatriate dividends and profits. Domestic
exporters, on the other hand may be allowed to resell part
of their foreign earnings at advantageous exchange rates.

MEASURES FOR IMPORT SUBSTITUTION CONT.

Tariff

Walls: - Tariffs and surcharges are common

protection devices. Tariff rates differ between
countries and also vary over time. It is convenient to
characterize a countrys control over foreign trade
according to the policy implemented.

Physical

Restrictions:- The method of physical

restriction on import or even outright banning of
import is used in cutting out imports. Reduction in
imports is brought out by such devices as quotas,
licensing, ban on certain imports etc. It is a sure way
of protecting the domestic producers from the
foreign competition.

ADVANTAGES & DISADVANTAGES

OF IMPORT SUBSTITUTION
Advantages
Increase in domestic employment.
Reduced dependence on labor non intensive industries.
Resilience in the face of global economic shock
(recessions & depreciations)
Less long distance transportation of goods.
Disadvantages
The IS industries are inefficient as they are not exposed
to internationally competitive industries.
Increase in unemployment internationally as world GDP
decreases through promotion of inefficiency.

International Trade Blocs

What is a Trade Bloc?

group of countries

Which are geographically close to each other

Have similar trade policies

With their mutual co-operation allow free flow of

goods
Trade blocs have liberal rules for the member
countries and separate set of rules for the nonmember countries
They facilitate trade to member countries of the
group but create barriers and block the trade of
member countries

Types of Trade Blocs

Trade
Blocs

Free Trade
Area

NAFTA

SAARC

Customs
Union

Common
Market

CACM

OPEC

Economic
Union

EU

ALADI

Features of Trade Blocs

Voluntary in Character

Mutual Negotiations

Regional in Character

Divisions based on political considerations

Existence based on usefulness

Objectives of Trade Blocs

Reduction

of trade barriers among the member countries

Maintaining
Imposing

barriers on non member countries

Promoting

better relations

free transfer of labour, capital and other factors

Creating common currency and Central Bank

Assisting

member countries

Enhancing

welfare of consumers

Generating

competition

Positive Effects of Trade Blocs

Economic

Integration

Expansion

of Markets

Growth

and Development of the region

Increase
Product
Benefits
Free

in trade

and Market Development

to consumers of member countries

transfer of resources / factors

Negative Effects of Trade Blocs

Common
Absence

External Barriers
of Collective Bargaining

Affects

Competition

Affects

global and international trade

High

Tariffs

Import
Loss

Restrictions

of Political Sovereignty

Trade Blocs & Intra-regional trade

Intra-regional trade means trade carried on within one

trading blocs.
Trade Blocs have contributed the following favorable
factors for the growth of Intra-regional Trade

Removal of trade barriers

Transfer of labour and capital

Close relations between members

Transport and other infrastructural facilities

Common external barriers on non members

Common economic policy

Trade Blocs

Trade Blocs
ASEAN
SAARC
EU
CEAFTA
EFTA
SACU
CACM
APEC
SACDC
ECOWAS

SAARC
SAARC

stands for South Asian Association for Regional Cooperation

Headquartered
It

in Kathmandu, Nepal

was established on 8th December 1985

Members:
1. Afghanistan
2. Bangladesh
3. Bhutan
4. India
5. Maldives
6. Nepal
7. Pakistan
8. Sri

Lanka

.The

SAARC policies aim to promote:

. Welfare

economics

. Collective

self-reliance among the countries of South Asia

. Accelerate
. Develop

socio-cultural development in the region

good external relations

EU

EU stands for European Union.

Came into existence on 1st January 1958

It is headquartered at Brussels, Belgium

It has 28 member countries:

1.

United Kingdom

2.

Belgium

3.

Finland

4.

France

5.

Germany

6.

Netherlands

7.

Norway

8.

Poland

9.

Portugal and 19 more

. In

January 1999, a common currency (Euro) was introduced

. EU
. It

offers financial aid to the developing countries

is a strong trade bloc politically, industrially and economically