Trade and Investment Policies
Trade and Investment
Voluntary Export Restraint
Local Content Requirements
Investment restrictions. (longer list on pg.82)
Bureaucratic Hurdles 3
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
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
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
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.
Measures to facilitate
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.
I.M.F. – Facilitates trade by regulating exchange
rates. Also gives loans and economic
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
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
GATT became one of the agreements under WTO
General Agreement on Trade in Services. (GATS)
Trade related aspects of intellectual property
U.S position in world trade
U.S. Multi-nationals the largest after WWII.
Exports as well as direct foreign investments
Controls imposed by Latin American, Asian, and
70’s & 80’s competition from Japan and the
80’s U.S. Balance of trade problems.
90’s U.S. expansion of trade in technology,
services, and intellectual property.
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.
Export promotion efforts.
Export information and advise.
Finance and Guarantees - Export-Import Bank,
Agency for International Development, Overseas
private Investment Corp.
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
BMW Spartanburg Nissan Mississippi
Financial – land or buildings, loans or loan guarantees,
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).
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
If goods processed and
exported than tariffs only
on value added.
Foreign Trade Zones (Pg. 550-551)
If goods processed and sold in the
country than tariffs only on parts
Located all over the world – more than
150 in the US.
Advantages of Foreign
Use of cheap labor or skilled workforce,
and local content without paying duties.
Lower tariffs for parts and
lower transportation and
Stockpile products while
waiting for quotas or buyers.
No duties on rejected or
unsold products. Maquiladoras in Mexico