Ch 3 Trade and Investment Policies.

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Ch - 3 Trade and Investment Policies.

• Trade Barriers
• Tariffs
• Quotas
• Voluntary Export Restraint
• Monetary Barriers
• Standards
• Local Content Requirements
• Investment restrictions.
  (longer list on pg.82)
• Bureaucratic Hurdles

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Trade Barriers.

• Tariffs taxes based on the value of imported
  goods and services. Usually by product
  categories, sometimes countries. Revenue
  generating, discourage imports of undesirable
  products, level the playing field.
• Quotas Restrictions on the number or monetary
  value of products that can be imported,
  (sometimes market share). Usually product and
  country specific.
• Voluntary Export Restraint Country specific.
  Usually under pressure and severe threats.
  Designed to help domestic industries reorganize
  and restructure. Not subject to any previous
  trade accords.
• Monetary Barriers exchange control,
  nonconvertible currency, differential exchange
  rates. Usually balance of payment problems
  (developing countries).

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Trade Barriers.

• Standards Product specific. Health, Safety,
  Quality, Performance. Designed to protect
  consumers but are often disguised barriers.
• Local Content Requirements Designed to aid
  domestic economy by either increasing sales of
  local manufacturers or encouraging foreign
  direct investment.
• Investment Restrictions Restrictions on the
  percentage of ownership of local firms by
  foreign manufacturers. Designed to keep decision
  making and ownership in local hands.
• Bureaucratic Hurdles Licenses, Testing,
  Certification, Buy domestic campaigns, Boycotts
  etc.

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Measures to facilitate trade.

• G.A.T.T. General Agreement on Tariffs and Trade
  Part of W.T.O. after 1994.
• Most Favored nation status All members of WTO
  have to be given similar trading privileges. U.S.
  granted special status to China before it was
  part of W.T.O.
• W.T.O.
• I.M.F. Facilitates trade by regulating exchange
  rates. Also gives loans and economic
  advise/direction.

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G.A.T.T.

• General Agreement on Tariffs and Trade
  established in 1947 to facilitate trade -
  nondiscrimination, transparent procedures,
  settlement of disputes and participation of
  developing countries. From 1962 to reduce
  tariffs. No enforcement powers and covered
  manufacturing and fuels.
• Main issues in the last round of talks in
  1986-1994 were agriculture, Textiles and
  apparel, services and intellectual property.
  Also power to enforce policies and decisions.
• Developing countries concerned with opening
  developed country markets for agriculture
  (subsidies) and textiles (quotas).
• Developed countries (mainly U.S.) concerned with
  services (Govt. restrictions) and intellectual
  property (piracy).
• W.T.O. - This lead to the formation of the W.T.O.
  (World Trade Organization) in 1994. GATS and
  TRIPS agreements to deal with services and
  intellectual property.
• Video From GATT to WTO

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World Trade Organization

• 149 countries (as of December 2005)
• Lower trade barriers, set rules governing trade
  between its members, settle trade disputes, and
  issue binding decisions. Video on WTO with
  examples of its work 
• WTO website
• GATT became one of the agreements under WTO
• General Agreement on Trade in Services. (GATS)
• Trade related aspects of intellectual property
  rights (TRIPS)

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U.S position in world trade- History.

• U.S. Multi-nationals the largest after WWII.
• Exports as well as direct foreign investments
• Controls imposed by Latin American, Asian, and
  European Governments.
• 70s 80s competition from Japan and the N.I.C.
• 80s U.S. Balance of trade problems.
• 90s U.S. expansion of trade in technology,
  services, and intellectual property.

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Balance of trade/payments.

• Important because it effects currency values,
  domestic wages, employment, inflation and the
  general economy.
• Several measures to correct imbalance e.g.,
  Omnibus Trade and Competitiveness Act. other
  export promotion efforts, and foreign investment
  promotion efforts.

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Omnibus Trade and Competitiveness Act.

• Market Access - Non-Tariff barriers, Government
  Procurement, Telecommunications Market.
• Export Expansion - relaxed F.C.P.A. (Foreign
  Corrupt Practices Act), easy export licenses,
  financial assistance, and information.
• Import Relief - Anti-Dumping, Intellectual
  property protection, temporary relief.

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Export promotion efforts.

• Export information and advise. (www.usatrade.gov)
• Production support.
• Marketing support.
• Finance and Guarantees - Export-Import Bank,
  Agency for International Development, Overseas
  private Investment Corp.
• Tax legislation.

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Foreign Investment promotion efforts.

• Subsidies (e.g., Mississippi 295 million package
  to Nissan, Alabama 119 million to Mercedes, and
  158 million to Honda, BMW in Spartanburg got
  100,000 per job created).
• BMW Spartanburg
  Nissan
  Mississippi
• 
  Honda
  Alabama

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Foreign Investment promotion efforts.

• Financial land or buildings, loans or loan
  guarantees, new infrastructure.
• Tax Incentives credits or rebates, depreciation
  allowance, special deductions, tax holidays.
• Non-financial Elimination of tariff and
  non-tariff barriers, protection from competition
  through barriers, Job training programs,
  protection from unions.
• Foreign Trade Zones (customs privileged
  facilities).

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Foreign Trade Zones (Pg. 550-551)

• Areas where goods can be
• imported for storage and/or
• processing with tariffs and
• quota limits postponed until
• products leave the designated
• areas.
• If goods processed and
• exported than tariffs only
• on value added.

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Foreign Trade Zones (Pg. 550-551)

• If goods processed and sold in the country than
  tariffs only on parts imported.
• Located all over the world more than 150 in the
  US. http//www.igeo.ufrj.br/gruporetis/sistfin/map
  as/mapaglobal.jpg

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Advantages of Foreign Trade Zones

• Use of cheap labor or skilled workforce, and
  local content without paying duties.
• Lower tariffs for parts and
• lower transportation and
• insurance costs.
• Stockpile products while
• waiting for quotas or buyers.
• No duties on rejected or
• unsold products.
  Maquiladoras in Mexico