session trade environment. topic outline investment policies trade policies fta’s trade...
TRANSCRIPT
Session
Trade Environment
Topic Outline
Investment Policies Trade Policies FTA’s Trade Restrictions MFN Investment Promotion
Weekly Activity: Market Globalisation Factors Consider this: Market Globalization Drivers depend on the
nature of customer behavior and the structure of channels of distribution.
List down some common market drivers that would influence you to sell overseas.
With each driver, explain your reasoning.
This Session
What is International Trade?
Importing: buying goods & services from other countries.
Exporting: selling goods & services to other countries.
Topic Example Video
The following video explains the benefits of trade and investment policies to those countries in most need.
Take note of the key points. http://www.youtube.com/watch?
v=FE2JNUz9src
Trade & Investment Policies
Government policies are designed to regulate, direct, and protect national activities. The exercise of these policies is the result of national sovereignty, which provides a government with the right to shape the environment of the country and its citizens.
The domestic policy actions of most governments aim to increase the standard of living of citizens and to improve the quality of life, and to achieve full employment.
These policies affect international trade and investment indirectly.
In more direct ways, a country may also pursue technology transfer from abroad or the exclusion of foreign industries to the benefit of domestic infant firms.
Government officials can also develop regulations on imports to protect citizens.
Nations institute foreign policy measures designed with domestic concerns in mind but explicitly aimed to exercise influence abroad.
A major foreign policy goal is national security.
Trade & Investment Policies
Global Governance
Politics/Peace- United Nations Trade- World Trade Organization (WTO) Money/Finance- International Monetary
Fund (IMF) Development- World Bank Overall- G8 Nations (USA, Canada, UK,
France, Germany, Italy, Japan, and Russia)
Other international institutions/bodies
Institutions in International Trade
World Economic and Trade Environment WTO, IMF, and World Bank in the World Economy
Role of the organizations Easing trade restrictions Protest against globalization
Multinationals in the global economy Role of American, European, Japanese, and Third
World multinationals on a timeline
|_______|________|_______|_______|_______|_______I1950 1960 1970 1980 1990 2000 2010
Global Marketing Environment The International Trade System:
Restrictions—tariffs, quotas, embargos, exchange controls, and nontariff trade barriers.
The World Trade Organization and GATT: Helps trade—reduces tariffs and other
international trade barriers. Regional Free Trade Zones:
Groups of nations organized to work toward common goals in the regulation of international trade.
International Organizations
International TradeOrganization (ITO)
General Agreement onTariffs and Trade (GATT)
World Trade Organization (WTO)
Topic Example Video
The following video is an outline of the history of the WTO and GATT.
Take note of the key points. http://www.youtube.com/watch?
v=1Xp75Egtvi8
International Trade Organization
In 1948, the ITO represented an agreement among 53 countries to:
Aid in international commercial policies, restrictive business practices, commodity agreements, employment and reconstruction, and economic development and international investment.
It developed a constitution for a new United Nations agency.
The ITO was never implemented.
General Agreement on tariffs & trade
GATT started in 1947 as a set of rules to ensure nondiscrimination, transparent procedures, the settlement of disputes, and the participation of the lesser-developed countries in international trade.
GATT used tariff concessions to limit the level of tariffs that would be imposed on other GATT members.
The Most Favored Nation clause calls for each member country to grant every other member country the same treatment that it accords with any other country with respect to imports and exports.
The GATT’s Beginning
General Agreement on Tariffs and Trade Developed as part of the Havana, Cuba
conference in 1947 Provided forum for trade ministers to
discuss barriers to international trade
The Role of the GATT
Goal: to promote a free and competitive international trading environment benefiting efficient producers
Accomplished by sponsoring multilateral negotiations to reduce tariffs, quotas, and other nontariff barriers
The History of GATT
©2004 Prentice Hall 10-18
The History of GATT
Most Favored Nation (MFN) Principle
Sought to ensure that international trade was conducted on a nondiscriminatory basis
Requires that any preferential treatment granted to one country must be extended to all countries
If the US cut the tariff on imports of British trucks to 20%, it also had to reduce tariffs on imported trucks from all other members to 20%
Topic Example Video
The following video presents an example of the MFN Principle and the issues associated with such status as highlighted between Pakistan and India.
Take note of the key points. http://www.youtube.com/watch?
v=bdQoNAE6ZU4
Exceptions to the MFN Principle
Members permitted to lower tariffs to developing countries without lowering them for more developed countries
Generalized system of preferences in U.S. Tariff Code Regional arrangements promote economic
integration (e.g., EU and NAFTA)
World Trade Organization (WTO) Headquartered in Geneva, Switzerland Began January 1, 1995 Included 146 members and 30 observer
countries as of June 2003
The World Trade Organization
The WTO was introduced in 1995 and administers international trade and investment accords. In 2002, the Dola Round ended
the first stage of implementation. The aim is to further hasten implementation of liberalization to help the impoverished and developing nations.
Goals of the WTO
Promote trade flows by encouraging nations to adopt nondiscriminatory, predictable trade policies
Reduce remaining trade barriers through multilateral negotiations
Establish impartial procedures for resolving trade disputes among members
1. It sets many rules governing trade between its 132 members
2. WTO provides a panel of experts to hear and rule on trade disputes between members, and, unlike GATT, issues binding decisions
Unlike GATT, is an institution, not an agreement
Unlike GATT, is an institution, not an agreement
World Trade Organisation
Differences between WTO and GATT
GATT focused on promoting trade in goods; WTO’s mandate includes trade in goods trade in services international intellectual property protection trade-related investment
WTO’s enforcement powers are stronger
WTO Trading System Principles
WTO Challenges
The Cairns Group Multifibre Agreement General Agreement on Trade in
Services (GATS) Agreement on Trade-Related
Aspects of Intellectual Property Rights (TRIPS)
Trade-Related Investment Measures Agreement (TRIMS)
Enforcement of WTO Decisions
Country failing to live up to the agreement may have a complaint filed against it
WTO panel evaluates complaint If found in violation, the country may be
asked to eliminate the trade barrier If country refuses, WTO will allow
complaining country to impose comparable trade barriers on the offending country
International Monetary Fund (IMF)
1. IMF was created to assist nations in becoming and remaining economically viable
2. It assists countries that seek capital for economic development and restructuring
3. IMF loans come with stipulations that borrowing countries slash spending and impose controls to curb inflation
4. It helps maintain stability in the world financial markets
Objectives of the IMF include:1. stabilization of foreign exchange
rates 2. establish convertible currencies to
facilitate international trade3. lend money to members in financial
trouble
Objectives of the IMF include:1. stabilization of foreign exchange
rates 2. establish convertible currencies to
facilitate international trade3. lend money to members in financial
trouble
Topic Example Video
The following video explains the history of the International Monetary Fund and the World Bank.
Take note of the key points. http://www.youtube.com/watch?
v=_xgxCf05Kmw
World Bank Group (WBG)
The goal of WBG is to reduce poverty and the improvement of living standards by promoting sustainable growth and investment in people.
The goal of WBG is to reduce poverty and the improvement of living standards by promoting sustainable growth and investment in people.
1. lending money to countries to finance development projects in education, health, and infrastructure;
2. providing assistance for projects to the poorest developing countries;
3. lending directly to the private sector in developing countries with long-term loans, equity investments, and other financial assistance;
4. provide investors with investment guarantees against “noncommercial risk,” so developing countries will attract FDI; and
5. provide conciliation and arbitration of disputes between governments and foreign investors
The functions of the WBG include:
Global Policy Environment
Three major changes have occurred over time in the global policy environment: a reduction of domestic policy influence; a weakening of traditional international
institutions; and a sharpening of the conflict between
industrialized and developing nations.
Domestic Policy Influences
Currency flows have increased from an average daily trade volume of $18 billion in 1980 to $1.2 trillion in 2001.
As a result, currency flows have begun to set the value of exchange rates independent of trade, which in turn have now begun to determine the level of trade.
The interactions between global and domestic financial flows have severely limited the influence of governments.
To regain influence, some governments have tried to restrict world trade by erecting barriers, charging tariffs, and implementing import regulations.
International Institutions
The intense links among nations and the new economic environment resulting from new market entrants and the encounter of different economic systems are weakening the WTO.
The International Monetary Fund does not have the funds available to satisfy the needs of all struggling nations.
The World Bank has been unsuccessful in furthering the economic goals of the developing world and newly emerging market economies. Some claim that its bank policies have created more poverty.
Free Trade Countries can buy and sell without any
trade barriers or restricitions eg. customs duties being imposed.
The 27 countries of the EU enjoy free trade.
Note Norway & Sweden members of.....
Topic Example Video
The following video provides an example of the differences between free trade and protectionism.
Take note of the key points. http://www.youtube.com/watch?v=7njIlZ2xYq0
Conflict Between Nations
In the past, it was hoped that the gap between industrialized and developing nations would gradually be closed.
Although several less-developed nations have emerged as newly industrialized countries, even more nations are facing grim economic futures.
An increase in environmental awareness has led to a further sharpening of the conflict.
Protectionism
Countries try to stop foreign imports. Countries try to help their own
businesses export. They do this by using trade barriers. Eg. Tariff, quota, embargo, subsidy.
Topic Example Video
The following video international trade barriers and their effects on Australian businesses.
Take note of the key points. http://www.youtube.com/watch?
v=4B29axJbnG8
Protectionism and Trade Barriers
Protectionism and Tariff Barriers Cost of protectionism: arguments for and
against Nontariff Barriers:
Quota and Import Licenses Domestic Subsidy and Economic Stimuli Standards and documentation
requirements Boycotts and Embargoes Monetary barriers Antidumping Penalties
Trade Barriers
1. Tariff Is a tax that a coutry adds on to imports. Eg. customs duty/import duty. This makes imports dearer & less attractive
to consumers.
2. Quota Countries put a limit on the amount of a
good that can be imported. Consumers then must by from indigenous
businesses. The EU has a quota on the no. of Chinese
garments it will allow into the EU.
3. Embargo Countries puts a complete ban on goods
being imported from a certain country. Consumers have no choice but to buy home
produce. The USA has a trade embargo with Cuba. During apartheid Ireland had a trade
embargo with South Africa.
4. Subsidy Is a direct payment to a producer. It reduces the cost of production. It makes exports cheaper. It boosts employment. It improves the balance of trade. Eg. Irish farmers obtain direct farm payment
from the EU.
Restrictions of Imports
Many countries including the United States have passed antidumping laws which help domestic industries by restricting foreign products being sold below the cost of production, or at prices lower than those in the home market.
Imports are also restricted by nontariff barriers, such as buy-domestic campaigns. It is difficult to remove these barriers.
Imports can also be reduced by tightening market access and entry of foreign products through involved procedures and inspections.
Protectionism: Logic and Illogic
Countries use protectionist measures to shield a country’s markets from intrusion by foreign competition and imports.
Countries use protectionist measures to shield a country’s markets from intrusion by foreign competition and imports.
Arguments for Protectionism include:
1. Maintain employment and reduce unemployment2. Increase of business size3. Retaliation and bargaining4. Protection of the home market 5. Need to keep money at home6. Encouragement of capital accumulation
Arguments for Protectionism include:
1. Maintain employment and reduce unemployment2. Increase of business size3. Retaliation and bargaining4. Protection of the home market 5. Need to keep money at home6. Encouragement of capital accumulation
Protectionism: Logic and Illogic
Arguments for Protectionism include:
7. Maintenance of the standard of living and real wages
8. Conservation of natural resources9. Protection of an infant industry10. Industrialization of a low-wage nation11. National defense
Arguments for Protectionism include:
7. Maintenance of the standard of living and real wages
8. Conservation of natural resources9. Protection of an infant industry10. Industrialization of a low-wage nation11. National defense
Protectionism: Logic and Illogic
In general, protectionism contributes to industrial inefficiency and makes a nation uncompetitive
Protectionism is implemented through the imposition of trade barriers, which include tariff barriers and non-tariff barriers
The Impact of Tariff (Tax) Barriers
Tariff Barriers tend to Weaken:1. Balance-of-payments positions2. Supply-and-demand patterns3. International relations (they can start
trade wars)
The Impact of Tariff (Tax) Barriers
Tariff Barriers tend to Restrict:1. Manufacturer’ supply sources2. Choices available to consumers3. Competition
Six Types of Non-Tariff Barriers
(2) Customs and Administrative Entry Procedures:1. Valuation systems2. Antidumping practices3. Tariff classifications4. Documentation requirements5. Fees
(2) Customs and Administrative Entry Procedures:1. Valuation systems2. Antidumping practices3. Tariff classifications4. Documentation requirements5. Fees
(1) Specific Limitations on Trade:1. Quotas2. Import Licensing requirements3. Proportion restrictions of foreign to
domestic goods (local content requirements)
4. Minimum import price limits5. Embargoes
(1) Specific Limitations on Trade:1. Quotas2. Import Licensing requirements3. Proportion restrictions of foreign to
domestic goods (local content requirements)
4. Minimum import price limits5. Embargoes
Six Types of Non-Tariff Barriers
(3) Standards:1. Standard disparities2. Intergovernmental acceptances of testing
methods and standards3. Packaging, labeling, and marking
(3) Standards:1. Standard disparities2. Intergovernmental acceptances of testing
methods and standards3. Packaging, labeling, and marking
(4) Government Participation in Trade:
1. Government procurement policies2. Export subsidies3. Countervailing duties4. Domestic assistance programs
(4) Government Participation in Trade:
1. Government procurement policies2. Export subsidies3. Countervailing duties4. Domestic assistance programs
Six Types of Non-Tariff Barriers
(5) Charges on imports:1. Prior import deposit subsidies2. Administrative fees3. Special supplementary duties4. Import credit discriminations5. Variable levies6. Border taxes
(5) Charges on imports:1. Prior import deposit subsidies2. Administrative fees3. Special supplementary duties4. Import credit discriminations5. Variable levies6. Border taxes
(6) Others:1. Voluntary export restraints2. Orderly marketing agreements
(6) Others:1. Voluntary export restraints2. Orderly marketing agreements
Monetary Barriers
In addition to the Six Types of Non-Tariff Barriers, monetary barriers are also used by countries
In addition to the Six Types of Non-Tariff Barriers, monetary barriers are also used by countries
Three types of monetary barriers include:
1. Blocked currency
2. Differential exchange rates
3. Government approval
Three types of monetary barriers include:
1. Blocked currency
2. Differential exchange rates
3. Government approval
Effects of Import Restriction
Import control may mean that the most efficient sources of supply are not available, resulting in second-best products or higher costs for restricted supplies.
Import control may result in the downstream change in the composition of imports.
Due to inefficiency, import controls may cause a lag in technological advancements.
Restrictions of Exports
Nations control their exports for reasons of short supply, national security and foreign policy purposes, or the desire to retain capital.
National security controls are placed on weapons and high-technology exports.
Although restriction of exports is a valuable international relations tool, it may give a country’s firms the reputation of being unreliable suppliers and may divert orders to firms of other nations.
Export Promotion Export promotion is designed to help firms enter
and maintain their position in international markets and to match or counteract similar efforts by other nations.
Various approaches toward export promotion include:
knowledge transfer direct or indirect subsidization of export activities reducing governmental red tape for exporters export financing and mixed aid credits to
exporters altered tax legislation for nationals living abroad
Import Promotion
Countries that maintain large balance-of-trade surpluses use import promotion measures. The Japan External Trade Organization
(JETRO) has begun to focus on the promotion of imports to Japan.
FDI Impacts on Host Countries
Positive Impact capital information technology and
management skills transfer
regional and sectoral development
internal competition and entrepreneurship
favorable effect on balance of payments
increased employment
Negative Impact industrial dominance technological
dependence disturbance of
economic plans cultural change interference by home
government of multinational corporation
Restrictions on Investment
Many nations that lack necessary foreign exchange reserves restrict exports of capital, because capital flight can be a major problem.
Once governments impose restrictions on the export of funds, the desire to transfer capital abroad increases. This creates problems for gaining new outside investors.
Investment Promotion
Fiscal Incentives
Financial Incentives
Nonfinancial Incentives
Topic Example Video
The following video highlights how investment promotion can have a major benefit on a country.
Take note of the key points. http://www.youtube.com/watch?
v=ELEBmsNHu9g
Investment Promotion (cont.)
Fiscal incentives are specific tax measures designed to attract the foreign investor, including special depreciation allowances, tax credits or rebates, special deductions for capital expenditures, tax holidays, and reduction of tax burdens.
Financial incentives offer special funding for the investor by providing land or building, loans, and loan guarantees.
Nonfinancial incentives can consist of guaranteed government purchases, special protection from competition, and investments in infrastructure facilities.
MNC & Host Country
BargainingPower
Time
Policy Provided/Demanded
Incentives for Investment
Continued Privileged Treatment
Discriminating Requirements
End of Relationship/ Divestment
MNC
Trade and Investment Policies
The U.S. seeks a positive trade policy rather than reactive, ad hoc responses to specific situations.
Protectionist legislation can be helpful, provided it is not enacted into law.
Trade promotion authority gives Congress the right to accept or reject treaties and agreements, but reduces the amendment procedures
From an international perspective, trade and investment negotiations must continue.
In doing so, trade and investment policy can take either a multilateral or bilateral approach:
bilateral negotiations are carried out mainly between two nations.
multilateral negotiations are carried out among a number of nations.
Trade and Investment Policies
Next Session Weekly Activity: The World Factbook What foreign market(s) will the
company enter? Analysis of local demand, availability
of resources Existing and potential competition,
tariff rates, currency stability, investment barriers
What expenditures are required to enter a new market?
What is the best way to organize overseas operations?
Good starting point for research: CIA’s World Factbook