Government policies

Government policies

There is often some conflict, pertaining to intra-firm trade, between the wishes of the home country’s government, which deals with the multinational firm, and the wishes of the host country’s government, which deals with the subsidiary.The home country’s government likes the multinational firm to use the domestic facilities to supply foreign subsidiaries.The host country’s government, on the other hand, wants to see an increase in the use of local inputs by the subsidiary at the expense of imports from the parent firm (in the form of intra-firm trade).This conflict leads to a restriction of the ability to indulge in intra-firm trade with some consequences for transfer pricing.