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Information Security Culture

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Title: Information Security Culture


1

Part One Firms, International Trade, and the
WTO Dr. Simon J. Evenett 2 April 2004
2
Organisation of this part of the course
  • Factual overview of the world trading system.
  • Why do nations trade?
  • Three simple principles of trade policy.
  • How do firms use the WTO and its rules?
  • Service sector reform and the WTO.

3
Defining terms World trading system
  • Misnomer
  • World
  • Should not connote same participation by all
    nations.
  • Trading
  • Should not be taken to mean just trade in goods
    and services FDI and migration are important
    too.
  • System
  • Should not be taken to mean that there is some
    overarching mechanism or group of people that
    control all of these commercial transactions or
    state-to-state interactions.

4
Exports by region in 2001
5
Export growth since 1990
6
Export growth of selected regional trading areas
since 1990
7
World export growth has been much faster than GDP
growth
8
Exports of commercial services is now 20 percent
of total exports
9
Parts and components trade has grown much faster
than final goods
10
FDI inflows 1995-2001
11
FDI stocks 1980-2001
12
FDI and domestic capital formation (investment)
13
Most inward FDI is MA, not Greenfield FDI
14
Foreign born workers in OECD nations 1991 and 1998
15
Remittances are often larger than aid receipts
16
Explanations for the factual record Why do
nations trade?
17
Principal explanations
  • Supply side factors.
  • Policy changes.
  • Interaction between these two factors.

18
Growth in international migration
  • Greater information flows and impact on
    aspirations.
  • Large cohorts of younger people in the developing
    world.
  • Falling cost of international travel.
  • Increased premium on skill in industrialised
    world.
  • Greater education opportunities in industrialised
    world.
  • Aging populations in industrialised world.

19
Growth in FDI
  • Death of distance.
  • Rise of export platforms.
  • Rise of international outsourcing which, in turn,
    reflects
  • Falling trade barriers.
  • Greater ability to enforce contracts with
    suppliers.
  • Changes in management thinking.
  • Substantial liberalisation of inward FDI regimes.
  • Less aversion to foreign takeovers etc.
  • Privatisation and deregulation reforms.

20
More nations are liberalising rules on foreign
investment
21
Growth in trade flows comparative advantage
  • Principle of Comparative Advantage (Ricardo).
  • Sources of comparative advantage
  • Technological/productivity differences.
  • Factor endownment differences.
  • Capital rich north and labour abundant south.
  • Differences in tastes.
  • Product differentiation (Krugman, Helpman.)

22
Growth in trade flows falling barriers
  • Death of Distance including
  • Falling international transportation costs.
  • Ease of communication.
  • Recent doubts on the importance of these factors.
  • Reductions in trade barriers.
  • Types of trade barriers tariffs, quotas, etc.
  • Type of trade reform unilateral, regional,
    multilateral.
  • Relative importance 2/3 policy 1/3 other
    factors.

23
And tariffs on industrial products in wealthy
countries are generally low
24
But more favourable access cannot be taken for
granted!
25
Antidumping cases 1995-2000
26
Lower tariffs etc are good for business, but are
they smart politics?
  • Not always.
  • Countries tend not to liberalise unilaterally.
    Why?
  • Concentrated pain and diffuse benefits.
  • When countries liberalise together export
    interests can be galvanised too.
  • Explains why we see so many bilateral and
    regional trade agreements, like NAFTA, EU.

27
But why do all major governments come together to
liberalise?
  • Because regional and bilateral agreements
    introduce discrimination against excluded firms.
  • Multilateral agreements provide greater
    certainty.
  • Any benefit extended to one country must be
    extended to all.
  • Most Favoured Nation principle.
  • WTO is the forum where multilateral trade
    agreements are negotiated and enforced.
  • More on the WTO later.

28
Three Simple Principles of Trade Policy.
29
What is trade policy?
  • Set of policy measures that a customs territory
    uses to discriminate against goods as they cross
    the border.
  • Discrimination against imports (or protection).
  • Tariffs, quotas, tariff-quotas, anti-dumping
    orders.
  • Discrimination against exports.
  • Export taxes.
  • Discrimination in favour of exports.
  • Export subsidies.

30
Principle 1 A tax on imports is a tax on exports
  • Consult Irwins short book for these principles.
  • Nations export to pay for their imports.
  • Domestic consumers can be supplied directly or
    indirectly. Both methods require resources.
  • Market forces and allowing international trade
    selects the most efficient method.
  • Lerner Symmetry.
  • A nations own tariffs damage its export
    interests. Why?

31
Principle 2 Businesses are consumers too.
  • It is well known that personal consumers gain
    from reductions in tariffs on the goods they
    import.
  • What is less well appreciated is that firms
    import lots of goods too.
  • The prices firms pay for imports directly affects
    their costs and competitiveness.
  • International production networks.
  • Incentives created for firms to lobby.
  • Structure of protection tariff escalation.

32
Principle 3 Trade imbalances reflect capital
flows.
  • Balance of payments includes
  • Current account,
  • Capital account, and
  • A small balancing terms.
  • In gross terms capital account transactions are
    much larger than current account transactions.
  • Capital account drives the current account.
  • What drives the capital flows? Perceived
    differences in returns on financial assets.

33
Three fallacies of import protection.
  • Reverse these three principles to understand why
    the following statements are fallacies.
  • Tariffs affect imports not export
    competitiveness.
  • Tariffs protect industries and save jobs.
  • Higher tariffs can reduce the trade deficit.
  • These arguments apply not just to tariffs but to
    other forms of protection (quotas, antidumping
    orders, etc.)

34
Recap what have we learnt so far?
  • Factual record on trade flows, FDI, and
    associated policy reforms.
  • Why nations trade.
  • Why nations liberalise trade together.
  • Three principles of trade policyor three
    fallacies about import protection.
  • Next we add some firm based specificity.

35
How do firms use the WTO and its rules?
36
Setting the scene
  • Four ways in which firms enter foreign markets
  • Direct exporting of goods and services.
  • Establish subsidiary in a foreign market
    (including joint ventures.)
  • Licensing foreign firms to produce.
  • Temporary movement of employees to foreign
    customers.
  • Long standing discrimination against foreign
    suppliers.

37
The WTO
  • Established on 1 January 1995.
  • Membershipgovernments only.
  • Funding.
  • Inter-governmental not supra-national.
  • Negotiate agreements in rounds.
  • Enforce agreements through dispute settlement.

38
How informed businesses use the WTO
39
How informed businesses use the WTO
40
Blocking Chinas WTO Accession AIG
  • The interest of a single U.S. company, insurance
    giant AIG, was stopping a final agreement on
    China's WTO membership. Washington Post, 1
    October 2001.
  • AIGs wholly-owned subsidiary in China.
  • What WTO accession would mean for competition to
    AIG.
  • What subsequently happened.

41
Using trade rules for commercial advantage key
factors
  • Influence of firm over national trade
    policymaking.
  • Necessary? If so, means and extent?
  • Mix of firm-control versus official-control over
    key decisions.
  • Initiation and termination.
  • Threats and payoffs.
  • Conflicts with national foreign policy goals.
  • Access to best legal expertise.

42
Wrapping UpTrade policy and inter-firm rivalry
  • Firms operating abroador fighting foreign
    competitionhave a clear interest in manipulating
    trade policies to their advantage.
  • There are four levers that influential firms
    can and do pull.
  • Remember rivals have access to these leverscalls
    for defensive planning too.
  • Many factors determine the effectiveness of a
    strategy based in part on trade policy.

43
Service sector reform and the WTO
44
Preliminaries
  • Essential reference is Mattoos paper on the
    course outline.
  • What are the characteristics of services?
  • In what ways, if at all, do they differ from
    goods?

45
How are services traded?
46
The gains from services trade the case of legal
services
47
Economics of reducing discrimination against
foreign service sector firms
  • Depends very much on the nature of the
    liberalisation.
  • Lowering of a price-based measure.
  • Allowing more entry to occur.
  • Interactions with public service obligations.
  • Substitution across modes of supply as well as
    between domestic and foreign firms.
  • Presence of asymmetries of information can have
    non-price-based effects.
  • Financial stability and allowing in foreign banks.

48
General Agreement on Trade in Services (GATS)
  • Negotiated in the Uruguay Round.
  • Main points
  • Different in structure from GATT.
  • Provides a framework for future liberalisation of
    service sectors at the WTO.
  • Yet multilateral trade negotiations have yielded
    little liberalisation to date.
  • Even so, GATS and the principles underlying it
    have defined how many countries structure their
    own domestic reform initiatives.

49
Structure of General Agreement on Trade in
Services (GATS)
  • Contains a set of general rules on national
    treatment and market access.
  • Contains sector-specific commitments from each
    WTO member
  • Including a non-exclusive list of measures, some
    of which can be discriminatory.
  • For each sector and for each mode of supply, a
    nation specifies in its schedule one of four
    categories.
  • Commitments can come into effect at some point in
    the future.

50
Market Access commitments under the GATSstill
plenty to do.
51
National Treatment commitments under the GATSa
little better.
52
Complicating factors
  • MFN principle and regional trading agreements.
  • Relationship between the GATS and domestic
    regulation
  • Regulation can be motivated on social and
    efficiency grounds as well as by protectionism.
  • Difficulties in writing rules that distinguish
    between these motives raising possible
    encroachment of national sovereignty.
  • GATS affirms that liberalisation need not imply
    deregulation.
  • Necessity test use the least distortive
    instrument.

53
Example of the GATS-domestic regulation
interface Telecommunications sector
  • Two important regulatory matters
  • Universal service provisions.
  • Access to network technologies.
  • Could regulations on these matters have a
    discriminatory effect?
  • What would the necessity test say here?
  • Alternatives to current regulations.
  • (Non-binding) telecoms reference paper.

54
Chinas accession to the WTO Implications for
service sector firms.
  • China joined the WTO on 11 December 2001.
  • Accession negotiations differ from negotiations
    during trade rounds.
  • Existing WTO members have strong leverage.
  • In service sector this often amounted to haggling
    over the number of licenses to be granted to a
    trading partners service sector firms.
  • China made substantial commitments to open her
    service sector markets, see next tables.

55
Chinas Market Access commitments exceed other
poor WTO members
56
The same is true for Chinas National Treatment
commitments.
57
Chinas WTO commitments in the telecoms sector
  • Unclear commitments on mode 1 (cross-border
    supply.)
  • No commitments on mode 2 (consumption abroad).
  • On mode 3
  • Mobile voice and data service providers face
    restrictions on geographic coverage of operations
    (until 2006) and on equity shares (less than 49
    by 2004).
  • Similar restrictions apply to fixed line
    providers.

58
Lessons for firms from Chinas WTO accession
  • The window of opportunity presented by Chinas
    WTO accession is now closed.
  • China appears to be very reluctant to make any
    more concessions in this areahas implications
    for her role in current WTO trade negotiations.
  • There is a real premium for firms on following
    closely these issues at the WTO.
  • Implications for Russian WTO accession
    negotiations.
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