Lecture International trade and investment (2/e): Chapter 6 - John Gionea

Chapter 6 - Instruments of trade and investment policies. The main goals of this chapter are to: Undertake an historical overview of main government policies that have influenced international trade, examine the major types of barriers that are currently affecting international trade and investment, examine the major types of export-enhancement measures and their impact on international business.

Chapter Instruments of trade and investment policies Free T r a de sm i n o i t c Prote the trade policy pendulum Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea   6–1 Lecture plan • Protectionist vs free trade policies prior to World War • Barriers to trade – e.g tariff and non-tariff barriers, barriers to services • Export enhancement measures – subsidies – financial assistance – marketing assistance • Arguments pro and against protection Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea   6–2 The ‘pendulum’ of trade policy: between free trade and protectionism • Mercantilism (16th century) – Trade surplus; protectionism • ‘Laissez-faire’ – • David Ricardo (early 19th century): free trade Great Depression: neo-Mercantilism – Protectionism up in the US, UK, France • Trade liberalisation after World War – GATT, IMF, World Bank, OECE (OECD) Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea   6–3 Two groups of trade policy instruments • Protection measures – barriers to trade in goods and services • Export enhancement measures Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea   6–4 Barriers to trade and investment • Tariff barriers • Non-tariff barriers (e.g quotas, standards, procurement policies) • Export restrictions • Import restrictions • Barriers to trade in services • Financial limits (e.g exchange controls, profit remittance limits) • Limits on FDI entry and operations Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea   6–5 Trade and tariff barriers • Tax imposed on imported physical goods – effects of an indirect tax • Tariffs – oldest form of trade policy – specific, ad valorem and compound duties • Good for government • Good for producers – but reduces efficiency • Bad for consumers Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea   6–6 Measuring tariff schedules —unweighted average • • • • A = 10% B = 5% C = 8% D = 7% 10+5+8+7 • UWA = - = 7.5% Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea   6–7 Measuring tariff schedules —weighted average ATR = (10 x 0.10) + (5 x 0.60) + (8 x 0.15) + (7 x 0.15) = + + 1.2 + 1.05 = 6.35% Product Imp’s US$m (%) ID A 100 10 B 600 C 150 D 150 Weights: A (0.10); B (0.60); C (0.15): D (0.15) Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea   6–8 Price effects of an import duty • A rise in domestic prices of less than amount of duty (e.g when a large trading country like the US can influence world prices Supply schedules of foreign products are inelastic) • Price rise equal to amount of duty (e.g import supply schedule is perfectly elastic) • No change in price (e.g sole buyer) Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea   6–9 Non-tariff barriers: import quotas • Import quota – restriction on quantity of some goods imported into a country • Quotas (quantitative restrictions) – unilateral quotas – negotiated bilateral or unilateral quota e.g ‘voluntary export quotas’ – tariff quotas – embargoes/import bans (‘zero imports’) Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea   6–10 Other non-tariff barriers • Anti-dumping duties; can be used for protection against foreign competition, but can be also justified • Measures regarding safety, health, marketing, labelling, packaging and technical standards; generally justified, but can can become protectionist when excessive • Procurement policies Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea   6–11 Trade defence instruments • Anti-dumping duties – leading initiators: India, US, EU, Argentina, South Africa and Australia – most affected economies: China, Korea Rep., Chinese Taipei, Japan and Russia • Countervailing (anti-subsidy) duties • Safeguards • Need for simplification and clarification of WTO rules Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea   6–12 Trade barriers: export restrictions • Export bans – timber logs (Malaysia) – US trade with Cuba, Libya • Export duties/taxes – tax on grain exports (Argentina) • Minimum export prices (e.g Brazil on coffee) • Exclusive exports by state-trading enterprises (e.g India) Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea   6–13 Trade barriers: barriers to services trades • ‘National content’ in shipping • Sole rights to domestic insurance business • Limitations for foreign banks • Bilateral agreements in air transport • Lack of protection for copyrights/trademarks Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea   6–14 Foreign investment controls • Rejection of all foreign direct investment • Limitations on FDI (Mexico, Malaysia, South Korea) • Local content regulations • Export performance Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea   6–15 Export enhancement measures • Subsidies – export subsidies under agricultural assistance schemes • Financial assistance, e.g – export credit support – export credit insurance • Tax incentives – tax holidays – tax concessions – indirect-tax concessions Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea   6–16 Export enhancement measures • Export processing zones • Marketing assistance • marketing support (e.g AUSTRADE) • Trade-related investment measures • export performance requirements • local equity requirements (waivers) • Countertrade requirements Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea   6–17 Australian government policies to promote exports • Multilateral negotiations (e.g the Cairns group) • Regional initiatives (e.g APEC) • Bilateral agreements (e.g Australia–New Zealand CER) • Trade promotion and publicity (e.g export market development grants) Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea   6–18 Arguments pro-protection • Infant industry • Self-sufficiency (national defence) • Employment Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea   6–19 Arguments against protection • Inefficient allocation of resources • Income redistribution • Reduction in well-being • Current Australian government policies on protection – tariff debate – industry assistance Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea   6–20 ... Copyright 20 06 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea   6 4 Barriers to trade and investment. .. entry and operations Copyright 20 06 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea   6 5 Trade and. .. 20 06 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea Slides prepared by John Gionea   6 10 Other non-tariff barriers • Anti-dumping