Trade insvestment polices


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Trade insvestment polices

  1. 1. Trade and Investment Policies GEETA SHIROMANI ASSOCIATE PROFESSOR
  2. 2. 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 3
  3. 3. 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).
  4. 4. 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.
  5. 5. 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.
  6. 6. 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
  7. 7. 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)
  8. 8. 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.  70’s & 80’s competition from Japan and the N.I.C.  80’s U.S. Balance of trade problems.  90’s U.S. expansion of trade in technology, services, and intellectual property.
  9. 9. 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.
  10. 10. 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.
  11. 11. Export promotion efforts.  Export information and advise. (  Production support.  Marketing support.  Finance and Guarantees - Export-Import Bank, Agency for International Development, Overseas private Investment Corp.  Tax legislation.
  12. 12. 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
  13. 13. 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).
  14. 14. 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.
  15. 15. 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.
  16. 16. 1/30/2015 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