Title: The Dynamic Environment of International Trade
1(No Transcript)
22
Chapter
- The Dynamic Environment of International Trade
3Chapter 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
4Protection 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
5Trade 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
6Trade 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).
7Trade 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.
8The 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).
9U.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.
10Top Ten 2004 U.S. Trading Parnters( billions,
merchandise trade)
11Balance 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.
12U.S. Current Account by Major Components, 2002 (
billions)
13United States Current Account Balance ( of GDP)
14What Would One U.S. Dollar Buy?
15The 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
16Export 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.
17Foreign 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
18Foreign 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).
19Foreign 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.
20Foreign 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
21Advantages 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
22Four ongoing activities to support the growth of
international trade
- GATT
- The associated World Trade Organization (WTO)
- International Monetary Fund (IMF)
- The World Bank Group
23General 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.
24G.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
25World 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)
26The 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
27The 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
28Protests 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
29Summary
- 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.