The Dynamic Environment of International Trade

 

Global Perspective

TRADE BARRIERS AN INTERNATIONAL MARKETER’S MINEFIELD

We all know the story about U.S. trade disputes with Japan. Japan has so many trade barriers and high tariffs that U.S. manufacturers are unable to sell in Japan as much as Japanese companies sell in the United States. The Japanese claim that “unique” Japanese snow requires skis made in Japan, and U.S. baseballs are not good enough for Japanese baseball. Even when Japan opened its rice market, popular California rice had to be mixed and sold with inferior grades of Japanese rice. And, at this writing, the Japanese government continues to exclude American beef from the Japanese diet based on disputes about mad cow disease.

Another trade protection tactic even involved Britain’s Supreme Court of Judicature, which has finally answered a question that has long puzzled late night dorm room snackers : What, exactly, is a Pringle? With citations ranging from Baroness Hale of Richmond to Oliver Wendell Holmes, Lord Justice Robin Jacob concluded that legally it is a potato chip. The decision is bad news for Procter & Gamble U.K., which now owes $160 million in value added taxes to the state. It is thus good news for Her Majesty’s Revenue and Customs and for fans of no-nonsense legal opinions. It is also a reminder, as conservatives in the United States attack Justice Sonia Sotomayor for not being a “strict constructionist,” of the pointlessness of such labels. In Britain, most foods are exempt from the value-added tax (VAT), but potato chips (known there as crisps) and “similar products made from the potato, or from potato fl our” are taxable. Procter & Gamble, in what could be considered a strict constructionist plea, argued that Pringles are about 40 percent potato flour but also contain corn, rice, and wheat and therefore should not be considered potato chips or “similar products.” Rather, they are “savory snacks.”

The VAT and Duties Tribunal disagreed, ruling that Pringles, marketed in the United States as “potato chips,” are taxable. “There are other ingredients,” the Tribunal agreed, but a Pringle is “made from potato fl our in the sense that one cannot say that it is not made from potato flour, and the proportion of potato fl our is signifi cant being over 40 percent.”

Barriers to trade, whatever form they take, both tariff and nontarif, are one of the major issues confronting international marketers. Nations continue to use trade barriers for a variety of reasons: some rational, some not so rational. Fortunately, tariffs generally have been reduced to record lows, and substantial progress has been made on eliminating nontarif barriers. And work continues around the world to further reduce these pesky hurdles to peace and prosperity.

Yesterday’s competitive market battles were fought in western Europe, Japan, and the United States; now competitive battles have extended to Latin America, eastern Europe, Russia, China, India, Asia, and Africa as these emerging markets continue to open to trade. More of the world’s people, from the richest to the poorest, will participate in the world’s growing prosperity through global trade. The emerging global economy brings us into worldwide competition, with signifi cant advantages for both marketers and consumers. Marketers benefi t from new markets opening and smaller markets growing large enough to become viable business opportunities. Consumers benefi t by being able to select from the widest range of goods produced anywhere in the world at the lowest prices.

Bound together by burgeoning international communications media and global companies, consumers in every corner of the world are demanding an ever-expanding variety of goods and services. As Exhibit 2.1 illustrates, world trade is an important economic activity. Because of this importance, the inclination is for countries to attempt to control international trade to their own advantage. As competition intensifi es, the tendency toward protectionism gains momentum. If the benefi ts of the social, political, and economic changes now taking place are to be fully realized, free trade must prevail throughout the global marketplace. The creation of the World Trade Organization (WTO) is one of the biggest victories for free trade in decades.