Post on 07-Apr-2018
8/6/2019 11- Wto and Gatt
http://slidepdf.com/reader/full/11-wto-and-gatt 1/17
1
Rationale and Goals of Tradeand Investment Policies
Government policies are designed to regulate, direct,and protect national activities. The exercise of these
policies is the result of national sovereignty, whichprovides a government with the right to shape theenvironment of the country and its citizens.
The domestic policy actions of most governments aim
to increase the standard of living of citizens and toimprove the quality of life, and to achieve fullemployment.
These policies affect international trade andinvestment indirectly.
8/6/2019 11- Wto and Gatt
http://slidepdf.com/reader/full/11-wto-and-gatt 2/17
2
Rationale and Goals of Tradeand Investment Policies (cont.)
In more direct ways, a country may also pursuetechnology transfer from abroad or the exclusion of
foreign industries to the benefit of domestic infant firms.
Government officials can also develop regulations onimports to protect citizens.
Nations institute foreign policy measures designedwith domestic concerns in mind but explicitly aimedto exercise influence abroad.
A major foreign policy goal is national security.
8/6/2019 11- Wto and Gatt
http://slidepdf.com/reader/full/11-wto-and-gatt 3/17
3
International Organizations
International Trade
Organization (ITO)
General Agreement on
Tariffs and Trade (GATT)
World Trade
Organization (WTO)
8/6/2019 11- Wto and Gatt
http://slidepdf.com/reader/full/11-wto-and-gatt 4/17
4
The International TradeOrganization
In 1948, the ITO represented anagreement among 53 countries
to: Aid in international commercialpolicies, restrictive business practices,commodity agreements, employment and reconstruction, and economicdevelopment and internationalinvestment.
It developed a constitution for a newUnited Nations agency.
The ITO was never implemented.
8/6/2019 11- Wto and Gatt
http://slidepdf.com/reader/full/11-wto-and-gatt 5/17
5
The General Agreement onTariffs and Trade
GATT started in 1947 as a set of rules toensure nondiscrimination, transparent
procedures, the settlement of disputes, andthe participation of the lesser-developedcountries in international trade.
GATT used tariff concessions to limit the level of tariffsthat would be imposed on other GATT members.
The Most Favored Nation clause calls for eachmember country to grant every other member countrythe same treatment that it accords with any othercountry with respect to imports and exports.
8/6/2019 11- Wto and Gatt
http://slidepdf.com/reader/full/11-wto-and-gatt 6/17
6
The World Trade OrganizationThe WTO was introduced in1995 and administers
international trade andinvestment accords.
In 2002, the Dola Round endedthe first stage of implementation.
The aim is to further hastenimplementation of liberalization tohelp the impoverished anddeveloping nations.
8/6/2019 11- Wto and Gatt
http://slidepdf.com/reader/full/11-wto-and-gatt 7/17
7
Changes in the Global PolicyEnvironment
Three major changes have occurred overtime in the global policy environment:
a reduction of domestic policy influence;
a weakening of traditional internationalinstitutions;
and a sharpening of the conflict betweenindustrialized and developing nations.
8/6/2019 11- Wto and Gatt
http://slidepdf.com/reader/full/11-wto-and-gatt 8/17
8
Restrictions of ImportsMany countries including the United States havepassed antidumping laws which help domesticindustries by restricting foreign products being sold
below the cost of production, or at prices lower thanthose in the home market.
Imports are also restricted by nontariff barriers, suchas buy-domestic campaigns. It is difficult to remove
these barriers.
Imports can also be reduced by tightening market access and entry of foreign products throughinvolved procedures and inspections.
8/6/2019 11- Wto and Gatt
http://slidepdf.com/reader/full/11-wto-and-gatt 9/17
9
Effects of Import RestrictionImport control may mean that the most efficient sourcesof supply are not available, resulting in second-best products or higher costs for restricted supplies.
Import control may result in the downstream change inthe composition of imports.
Due to inefficiency,
import controls may
cause a lag intechnological
advancements.
8/6/2019 11- Wto and Gatt
http://slidepdf.com/reader/full/11-wto-and-gatt 10/17
10
Restrictions of ExportsNations control their exports for reasons of short supply, national security and foreignpolicy purposes, or the desire to retain
capital.National security controls are placed onweapons and high-technology exports.
Although restriction of exports is a valuable
international relations tool, it may give acountrys firms the reputation of beingunreliable suppliers and may divert orders tofirms of other nations.
8/6/2019 11- Wto and Gatt
http://slidepdf.com/reader/full/11-wto-and-gatt 11/17
11
Export PromotionExport promotion is designed to help firms enter andmaintain their position in international markets and tomatch or counteract similar efforts by other nations.
Various approaches toward export promotioninclude:
knowledge transfer
direct or indirect subsidization of export activitiesreducing governmental red tape for exporters
export financing and mixed aid credits toexporters
altered tax legislation for nationals living abroad
8/6/2019 11- Wto and Gatt
http://slidepdf.com/reader/full/11-wto-and-gatt 12/17
12
Import PromotionCountries 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.
8/6/2019 11- Wto and Gatt
http://slidepdf.com/reader/full/11-wto-and-gatt 13/17
13
The Impacts of Foreign DirectInvestment on Host Countries
Positive Impactcapital information
technology andmanagement skillstransfer
regional and sectoraldevelopment
internal competition andentrepreneurship
favorable effect onbalance of payments
increased employment
Negative Impact
industrial dominancetechnologicaldependence
disturbance of economicplans
cultural changeinterference by homegovernment ofmultinational corporation
8/6/2019 11- Wto and Gatt
http://slidepdf.com/reader/full/11-wto-and-gatt 14/17
14
Restrictions on Investment
Many nations that lack necessaryforeign exchange reserves restrict
exports of capital, becausecapital flight can be a majorproblem.
Once governments impose
restrictions on the export of funds, the desire to transfercapital abroad increases. Thiscreates problems for gaining newoutside investors.
8/6/2019 11- Wto and Gatt
http://slidepdf.com/reader/full/11-wto-and-gatt 15/17
15
Investment Promotion
Fiscal Incentives
Financial Incentives
Nonfinancial Incentives
8/6/2019 11- Wto and Gatt
http://slidepdf.com/reader/full/11-wto-and-gatt 16/17
16
Investment Promotion (cont.)Fiscal incentives are specific tax measuresdesigned to attract the foreign investor, includingspecial depreciation allowances, tax credits or
rebates, special deductions for capital expenditures,tax holidays, and reduction of tax burdens.
Financial incentives offer special funding for theinvestor by providing land or building, loans, and loanguarantees.
Nonfinancial incentives can consist of guaranteedgovernment purchases, special protection fromcompetition, and investments in infrastructurefacilities.
8/6/2019 11- Wto and Gatt
http://slidepdf.com/reader/full/11-wto-and-gatt 17/17
17
Bargaining Power of MultinationalCorporation and Host Country
Bargaining
Power
Time
Policy Provided/Demanded
Incentives for Investment
Continued Privileged
Treatment
Discriminating Requirements
End of Relationship/
Divestment
MNC