Tài chính doanh nghiệp - Chapter 6: Instruments of trade and investment policies

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 2 GATT, IMF, World Bank, OECE (OECD)

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Chapter 6 Instruments of trade and investment policiesProtectionismFree Tradethe trade policy pendulum1Lecture planProtectionist vs free trade policies prior to World War 2Barriers to trade e.g. tariff and non-tariff barriers, barriers to services Export enhancement measuressubsidiesfinancial assistancemarketing assistance Arguments pro and against protection2The ‘pendulum’ of trade policy: between free trade and protectionismMercantilism (16th century)Trade surplus; protectionism‘Laissez-faire’ David Ricardo (early 19th century): free trade Great Depression: neo-MercantilismProtectionism up in the US, UK, France Trade liberalisation after World War 2GATT, IMF, World Bank, OECE (OECD)3Two groups of trade policy instrumentsProtection measuresbarriers to trade in goods and services Export enhancement measures4Barriers to trade and investmentTariff barriersNon-tariff barriers (e.g. quotas, standards, procurement policies)Export restrictionsImport restrictionsBarriers to trade in servicesFinancial limits (e.g. exchange controls, profit remittance limits)Limits on FDI entry and operations5Trade and tariff barriersTax imposed on imported physical goodseffects of an indirect taxTariffs – oldest form of trade policyspecific, ad valorem and compound dutiesGood for governmentGood for producersbut reduces efficiencyBad for consumers6Measuring tariff schedules —unweighted averageA = 10%B = 5%C = 8%D = 7% 10+5+8+7 UWA = ------------- = 7.5% 47Measuring tariff schedules —weighted averageATR = (10 x 0.10) + (5 x 0.60) + (8 x 0.15) + (7 x 0.15) =1 + 3 + 1.2 + 1.05 = 6.35%Product Imp’s ID US$m. (%)A 100 10B 600 5C 150 8D 150 7Weights: A (0.10); B (0.60); C (0.15): D (0.15).8Price effects of an import dutyA 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).9Non-tariff barriers: import quotasImport quotarestriction on quantity of some goods imported into a countryQuotas (quantitative restrictions)unilateral quotasnegotiated bilateral or unilateral quota e.g. ‘voluntary export quotas’tariff quotasembargoes/import bans (‘zero imports’)10Other non-tariff barriersAnti-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 policies11Trade defence instrumentsAnti-dumping dutiesleading initiators: India, US, EU, Argentina, South Africa and Australiamost affected economies: China, Korea Rep., Chinese Taipei, Japan and Russia.Countervailing (anti-subsidy) dutiesSafeguardsNeed for simplification and clarification of WTO rules 12Trade barriers: export restrictionsExport banstimber logs (Malaysia)US trade with Cuba, LibyaExport duties/taxestax on grain exports (Argentina)Minimum export prices (e.g. Brazil on coffee)Exclusive exports by state-trading enterprises (e.g. India)13 Trade barriers: barriers to services trades ‘National content’ in shippingSole rights to domestic insurance businessLimitations for foreign banksBilateral agreements in air transportLack of protection for copyrights/trademarks14Foreign investment controlsRejection of all foreign direct investmentLimitations on FDI (Mexico, Malaysia, South Korea)Local content regulationsExport performance15Export enhancement measuresSubsidiesexport subsidies under agricultural assistance schemesFinancial assistance, e.g.export credit supportexport credit insurance Tax incentives tax holidays tax concessions indirect-tax concessions16Export enhancement measuresExport processing zonesMarketing assistancemarketing support (e.g. AUSTRADE)Trade-related investment measuresexport performance requirementslocal equity requirements (waivers)Countertrade requirements17Australian government policies to promote exportsMultilateral 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)18Arguments pro-protectionInfant industrySelf-sufficiency (national defence)Employment19Arguments against protectionInefficient allocation of resourcesIncome redistributionReduction in well-being Current Australian government policies on protectiontariff debateindustry assistance 20
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