Title: Information Security Culture
1Part One International Trade And Its
Regulation Implications for Managers. Prof.
Simon J. Evenett www.evenett.com 25 November 2005
2Organisation 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.
3What is the world trading system and how has it
changed in recent years?
4Defining terms World trading system
- Misnomer
- World
- Should not connote equal 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.
5Exports by region in 2004
6Export growth since 2000
7Export growth of selected regional trading areas
since 2000
8World export growth has been much faster than GDP
growth
9Exports of commercial services is now 20 percent
of total exports
10Parts and components trade has grown much faster
than final goods
11FDI inflows 1995-2004
12FDI stocks 1980-2004
13FDI and domestic capital formation (investment)
14Most inward FDI is MA, not Greenfield FDI
15Foreign born workers in OECD nations 1998 and 2003
16Remittances are often larger than aid receipts
17Explanations for the factual record Why do
nations trade? And what are they trading more
than ever?
18Why do nations trade?
- 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.)
- Influence of policies.
19Why is trade growing so fast?
- 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. - Interaction between technology and trade barriers.
20Tariffs on industrial products in wealthy
countries are generally low
21But more favourable access cannot be taken for
granted!
22Antidumping cases 1995 June 2005
23Lower 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.
24But 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.
25Growth 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.
26Growth 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.
27More nations are liberalising rules on foreign
investment
28Three Simple Principles of Trade Policy.
- Here the reading by Douglas Irwin is relevant.
29What is trade policy?
- Set of policy measures that a customs territory
or nation 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.
30Principle 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?
31Principle 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.
32Principle 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.
33Three 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.)
34Recap 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.
35How do firms use the WTO and its rules?
- Here the case studies on the course outline are
relevant.
36Setting 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.
37The WTO
- Established on 1 January 1995.
- Membershipgovernments only.
- Funding.
- Inter-governmental not supra-national.
- Home to 4 main agreements GATT, GATS, TRIPs, and
DSU. (Get used to the acronyms!!) - Negotiate agreements in rounds.
- Enforce agreements through dispute settlement.
- See the ITC reading for further details.
38Four basic rules of the WTO
- Protection of domestic industry is through
tariffsban on quantitative restrictions on
trade. - Binding of tariffs.
- Most Favoured Nation (MFN) treatmentban on
discrimination among foreign suppliers. - National Treatmentban on discrimination against
foreign goods once they enter the domestic
commerce of a country. - Other rules relate to subsidies, temporary
measures to help domestic industries, and
treatment of intellectual property and investment.
39What stake does business have in the WTO?
- Think of a simple form of international commerce
importing a part or component. - What could go wrong and how do WTO rules prevent
or reduce the risks of engaging in international
trade? - Assurance that no quota prevents importation.
- Certainty over tariff treatment.
- Protection on customs valuation.
- Protection against discriminatory internal taxes
and regulations once customs is passed. - What are the corresponding benefits to exporters?
40Update on the Doha Round.
- Launched in 2001 to much fanfareincluded a
development mandate. - Envisaged negotiations on a wide range of areas
agriculture, manufactues, services, and other
rules. - Agricultural negotiations have proved to be a
sticking point agreement to eliminate export
subsidies but market access negotiations very
difficult. - Stalemate in November 2005. Everything held up by
agricultural negotiations. - Hong Kong Ministerial Meeting in December 2005.
- When will this round be concluded?
41How informed businesses use the WTO
42Blocking 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.
43How informed businesses use the WTO
44Using 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.
45Wrapping 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.
46Service sector reform and the WTO
- Here the Mattoo paper is relevant.
47Preliminaries
- Why is the trade perspective on service sector
reform potentially important? - Ongoing Doha round negotiations.
- European Services Directive.
- Other regional trade negotiations.
48Preliminaries
- What are the characteristics of services?
- Intangible.
- Invisible.
- Perishable.
- Requiring simultaneous production and
consumption. - Exceptions to these characteristics.
- In what ways, if at all, do they differ from
goods?
49Which policies affect service sector trade?
50The gains from services trade the case of legal
services
51Economics 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.
52General Agreement on Trade in Services (GATS)
- Negotiated in the Uruguay Round.
- Main points
- Different in structure from GATT.
- At best provides a framework for future
liberalisation of service sectors at the WTO. - Yet multilateral trade negotiations have yielded
little liberalisation to datecodification of
unilateral reforms. - Even so, GATS and the principles underlying it
have defined how many countries structure their
own domestic reform initiatives.
53Structure 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.
54Market Access commitments under the GATSstill
plenty to do.
55National Treatment commitments under the GATSa
little better.
56Complicating 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. - GATS affirms that liberalisation need not imply
deregulation. - Difficulties in writing rules that distinguish
between these motives raising possible
encroachment of national sovereignty. - Necessity test use the least distortive
instrument.
57Example 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.
58Chinas 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.
59Chinas Market Access commitments exceed other
poor WTO members
60The same is true for Chinas National Treatment
commitments.
61Chinas 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.
62Lessons 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.
63Wrap up on service sector reform and trade
negotiations.
- To date the main WTO agreement on service sector
trade has not led to many new commercial
opportunitiesyet it has help protect overseas
service operations. - But WTO accessions provide important windows of
opportunity to gain licenses and more favourable
treatment. - Regional trade negotiations provide another
vechile for securing greater market access. - Variety of regulations affecting service sector
suggest that securing market access is not
enoughsecuring national treatment is very
important but very sensitive. - Harmonisation and mutual recognition of internal
regulations become very important in this context.