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The Dynamic Environment of International Trade

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Market Access - Non-Tariff barriers, Government Procurement, Telecommunications Market. ... Corrupt Practices Act), easy export licenses, financial assistance, and information. ... – PowerPoint PPT presentation

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Title: The Dynamic Environment of International Trade


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2
Chapter
  • The Dynamic Environment of International Trade

3
Chapter Learning Objectives
  • Protection logic and illogic (Reasons for trade
    barriers).
  • Trade Barriers.
  • The basis for the reestablishment of world trade
    following World War II
  • U.S. Position in world trade.
  • The importance of balance-of-payment figures to a
    countrys economy
  • The provisions of the Omnibus Trade and
    Competitiveness Act
  • The importance of GATT and the World Trade
    Organization
  • The emergence of the International Monetary Fund
    and the World Bank Group

4
Protection Logic and Illogic
  • Arguments concerning protectionism on trade
  • Protection of infant industry
  • Protection of the home market
  • Need to keep money at home
  • Encouragement of capital accumulation
  • Maintenance of the standard of living and real
    wages
  • Conservation of natural resources
  • Industrialization of a low-wage nation
  • Maintenance of employment and reduction of
    unemployment
  • National defense
  • Increase of business size
  • Retaliation and bargaining

5
Trade Barriers
  • Tariffs
  • Quotas
  • Voluntary Export Restraints
  • Boycotts and Embargoes
  • Monetary Barriers
  • Blocked currency
  • Differential exchange
  • Government approval
  • Standards
  • Local Content Requirements
  • Investment Restrictions
  • Bureaucratic Hurdles
  • Antidumping Penalties

6
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 (government
    approval), blocked (nonconvertible) currency,
    differential exchange rates. Usually balance of
    payment problems (developing countries).

7
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.

8
The Twentieth to the Twenty-First Century
  • First Half of the Twentieth Century
  • Depression
  • WW I and WW II
  • Last Half of the Twentieth Century
  • Marred by struggles between countries espousing
    the socialist Marxist approach and those
    following a democratic capitalist approach to
    economic development.
  • Move toward international cooperation among
    trading nations was manifest in the negotiation
    of the General Agreement on Tariffs an Trade,
    (GATT).

9
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.
  • 70s 80s competition from Japan and the N.I.C.
  • 80s U.S. Balance of trade problems.
  • 90s U.S. expansion of trade in technology,
    services, and intellectual property.

10
Top Ten 2004 U.S. Trading Parnters( billions,
merchandise trade)
  • Insert Exhibit 2.1

11
Balance of payments.
  • Balance of Payments is the system of accounts
    that records a nations international finance
    transactions.
  • A Balance of Payments statement includes three
    accounts
  • Current account
  • Capital account
  • Reserves account
  • 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.

12
U.S. Current Account by Major Components, 2002 (
billions)
13
United States Current Account Balance ( of GDP)
14
What Would One U.S. Dollar Buy?
  • Insert Exhibit 2.5

15
The Omnibus Trade and Competitiveness Act
  • Designed to deal with trade deficits,
    protectionism, and the overall fairness of our
    trading partners.
  • The bill covers three areas considered critical
    in improving U.S. trade
  • 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

16
Export promotion efforts.
  • Export information and advise. (www.usatrade.gov)
  • Production support.
  • Marketing support.
  • Finance and Guarantees - Export-Import Bank,
    Agency for International Development, Overseas
    private Investment Corp.
  • Tax legislation.

17
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

18
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).

19
Foreign Trade Zones (Pg. 451-452)
  • 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.

20
Foreign Trade Zones
  • 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. http//www.igeo.ufrj.br/gruporetis/sistfin/map
    as/mapaglobal.jpg

21
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

22
Four ongoing activities to support the growth of
international trade
  • GATT
  • The associated World Trade Organization (WTO)
  • International Monetary Fund (IMF)
  • The World Bank Group

23
General Agreement on Tariffs and Trade
  • Paved the way for the first effective worldwide
    tariff agreement.
  • Basic Elements of the GATT
  • Trade shall be conducted on a nondiscriminatory
    basis
  • Protection shall be afforded domestic industries
    through customs tariffs, not through such
    commercial measures as import quotas
  • Consultation shall be the primary method used to
    solve global trade problems.

24
G.A.T.T.
  • Eliminating barriers to international trade
    (Uruguay Round)
  • Main issues in the Uruguay 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

25
World Trade Organization (website)
  • An institution, not an agreement as was GATT
  • Sets many rules governing trade between its 148
    members
  • Provides a panel of experts to hear and rule on
    trade disputes between members.
  • Issues binding decisions
  • All member countries have equal representation.
    Video on WTO with examples of its work
  • For the first time, member countries, undertake
    obligations to open their markets and to be bound
    by the rules of the multilateral trading system.
  • GATT became one of the agreements under WTO
  • The General Agreement on Trade in Services (GATS)
  • Trade-Related Investment Measures (TRIMs)
  • Trade-Related Aspects of Intellectual Property
    Rights (TRIPs)

26
The International Monetary Fund
  • Created to assist nations in becoming and
    remaining economically viable.
  • Objectives of the IMF
  • Stabilization of foreign exchange rates
  • Establishment of freely convertible currencies to
    facilitate the expansion and balanced growth of
    international trade
  • Special Drawing Rights (SDRs)
  • paper gold

27
The World Bank Group
  • Institution that has as its goal the reduction of
    poverty and the improvement of living standards
    by promoting sustainable growth and investment in
    people.
  • The World Bank has five institutions each of
    which performs the following services
  • Lending money to the government of developing
    countries
  • Providing assistance to governments for
    developmental projects to the poorest developing
    countries.
  • Lending directly to the private sector
  • Providing investors with investment guarantees
    against noncommercial risk.
  • Promoting increased flows of international
    investment

28
Protests against Global Institutions
  • The basic complaint against the WTO, IMF and
    others is the amalgam of unintended consequences
    of globalizing
  • Environmental concerns
  • Worker exploitation and domestic job losses
  • Cultural extinction
  • Higher oil prices
  • Diminished sovereignty of nations

29
Summary
  • The benefits from absolute or comparative
    advantage clearly can accrue to any nation.
  • Increased pressure for protectionism from every
    region of the globe.
  • The consumer seldom benefits from such
    protection.
  • Free international markets help underdeveloped
    countries become self-sufficient.
  • Freer trade will always be partially threatened
    by various governmental and market barriers that
    exist or are created for the protection of local
    businesses.
  • The future of open global markets lies with the
    controlled and equitable reduction of trade
    barriers.
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