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

Chapter 6: Instruments of Trade and Investment PoliciesInternational Trade PoliciesFREE TRADEPROTECTIONISMThe Trade Policy pendulum4 -1TOPIC PLAN:Protectionist vs.Free Trade policies prior to World War 2Barriers to Trade e.g.tariff and non-tariff barriers,barriers to services etc.Export Enhancement MeasuresSubsidiesFinancial assistanceMarketing assistance etc.Arguments pro and against protectionThe “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 etc.Trade Liberalisation after World War 2GATT,IMF,World Bank, OECE (OECD)Two groups of trade policyinstrumentsProtection measuresBarriers to trade in goods and servicesExport Enhancement MeasuresBarriers to trade and investmentTariff barriersNon-tariff barriers (e.g. quotas, standards, procurement policies)Export restrictionsExport restrictionsBarriers to trade in servicesFinancial limits (e.g. exchange controls, profit remittance limits)Limits on FDI entry and operationsTrade Barriers:Tariff BarriersTax imposed on imported physical goods;Effects of an indirect taxTariffs - oldest form of trade policySpecific-Ad valorem- Compound dutiesGood for governmentGood for producersBut reduces efficiencyBad for consumersMeasuring Tariff Schedules-Unweighted Average-A=10%B=5%C=8%D=7% 10+5+8+7 UWA=--------------=7.5% 4Measuring Tariff Schedules-Weighted Average-ATR=(10X0.10)+ (5X0.60) + (8X0.15)+ (7X0.15)=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)Price effects of an import dutyA rise in domestic prices of less than the amount of the 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 the amount of the duty (e.g.import supply schedule is perfectly elastic).No change in price (e.g. sole buyer).Non-Tariff Barriers: Import QuotasImport Quota:Restriction on the quantity of some good imported into a country.Quotas (Quantitative Restrictions)Unilateral quotasNegotiated bilateral or unilateral quota e.g. “voluntary export quotas”Tariff quotasEmbargoes/Import bans (“zero imports”)4 -11Other non-tariff barriersAnti-Dumping duties; can be used for protection against foreign competition, but can be also justified. Measures regarding safety, health, marking, labelling, packaging and technical standards; Generally justified, but can can become protectionist when excessive.The Procurement policiesTrade 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)Trade Barriers:Barriers to services trade “National Content’ in shippingSole rights to domestic insurance businessLimitations for foreign banksBilateral agreements in air transportLack of protection for copyrights/trademarks4 -14Foreign Investment ControlsRejection of all foreign direct investmentLimitations on FDI (Mexico, Malaysia, South Korea)Local content regulationsExport performance  Export Enhancement Measures Subsidiesexport subsidies under agricultural assistance schemesFinancial Assistance, e.g.export credit support;export credit insurance Tax incentives tax holidays; tax concessions indirect-tax concessions 4 -15Export Enhancement MeasuresExport processing zonesMarketing assistancemarketing support (e.g. AUSTRADE)Trade-related investment measuresExport performance requirementsLocal equity requirements (waivers)Counter-trade requirements Australian 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)Arguments pro-protectionthe ‘infant industry’the ‘self-sufficiency’ (‘national defence’)the ‘employment’Arguments against protectionInefficient allocation of resourcesIncome redistributionWell-being reductionCurrent Australian government policies on protectionTariff DebateIndustry Assistance