Transcript Chapter 6: Instruments of Trade and Investment Policies International Trade Policies The Trade Policy pendulum Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a International Trade and.

Chapter 6:
Instruments of Trade and Investment Policies
International Trade
Policies
The Trade Policy pendulum
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a
International Trade and Investment by John Gionea
Slides prepared by John Gionea
4 -1
TOPIC PLAN:
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Protectionist vs.Free Trade policies prior to World
War 2
Barriers to Trade
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Export Enhancement Measures
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e.g.tariff and non-tariff barriers,barriers to services etc.
Subsidies
Financial assistance
Marketing assistance etc.
Arguments pro and against protection
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a
International Trade and Investment by John Gionea
Slides prepared by John Gionea
The “Pendulum” of trade policy:
Between Free Trade and Protectionism
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Mercantilism (16th century)
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“Laissez-Faire”
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David Ricardo (early 19th century): Free trade
Great Depression: Neo-Mercantilism
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Trade surplus.Protectionism
Protectionism up in the US,UK,France etc.
Trade Liberalisation after World War 2
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GATT,IMF,World Bank, OECE (OECD)
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International Trade and Investment by John Gionea
Slides prepared by John Gionea
Two groups of trade policy
instruments
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Protection measures
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•
Barriers to trade in goods and
services
Export Enhancement Measures
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a
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Barriers to trade and investment
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Tariff barriers
Non-tariff barriers (e.g. quotas, standards,
procurement policies)
Export restrictions
Export restrictions
Barriers to trade in services
Financial limits (e.g. exchange controls, profit
remittance limits)
Limits on FDI entry and operations
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International Trade and Investment by John Gionea
Slides prepared by John Gionea
Trade Barriers:Tariff Barriers
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Tax imposed on imported physical goods;
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Effects of an indirect tax
• Tariffs - oldest form of trade policy
– Specific-Ad valorem- Compound duties
• Good for government
• Good for producers
– But reduces efficiency
• Bad for consumers
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International Trade and Investment by John Gionea
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Measuring Tariff Schedules
-Unweighted Average•
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A=10%
B=5%
C=8%
D=7%
10+5+8+7
UWA=--------------=7.5%
4
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a
International Trade and Investment by John Gionea
Slides prepared by John Gionea
Measuring Tariff Schedules
-Weighted AverageImp’s ID(%)
US$m.
A
100
10
B
600
5
C
150
8
D
150
7
WEIGHTS:A(0.10),B(0.60)
C(0.15),D(0.15)
Product
ATR=(10X0.10)+
(5X0.60) +
(8X0.15)+
(7X0.15)=
1+3+1.2+1.05=
6.35%
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a
International Trade and Investment by John Gionea
Slides prepared by John Gionea
Price effects of an import duty
• A 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).
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a
International Trade and Investment by John Gionea
Slides prepared by John Gionea
Non-Tariff Barriers: Import Quotas
• Import Quota:
– Restriction on the quantity of some good
imported into a country.
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Quotas (Quantitative Restrictions)
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Unilateral quotas
Negotiated bilateral or unilateral quota
e.g. “voluntary export quotas”
Tariff quotas
Embargoes/Import bans (“zero imports”)
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International Trade and Investment by John Gionea
Slides prepared by John Gionea
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Other non-tariff barriers
• Anti-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 policies
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a
International Trade and Investment by John Gionea
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Trade barriers:Export restrictions
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Export Bans
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Export duties/Taxes
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Timber logs (Malaysia)
US Trade with Cuba,Libya
Tax on grain exports (Argentina)
Minimum export prices (e.g. Brazil on
coffee)
Exclusive exports by state-trading
enterprises (e.g. India)
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International Trade and Investment by John Gionea
Slides prepared by John Gionea
Trade Barriers:
Barriers to services trade
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“National Content’ in shipping
Sole rights to domestic insurance business
Limitations for foreign banks
Bilateral agreements in air transport
Lack of protection for
copyrights/trademarks
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4 -14
Foreign Investment Controls
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Rejection of all foreign direct investment
Limitations on FDI (Mexico, Malaysia,
South Korea)
Local content regulations
Export performance
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International Trade and Investment by John Gionea
Slides prepared by John Gionea
Export Enhancement Measures
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Subsidies
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Financial Assistance, e.g.
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export subsidies under agricultural assistance
schemes
export credit support;
export credit insurance
Tax incentives
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tax holidays;
tax concessions
indirect-tax concessions
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Slides prepared by John Gionea
4 -15
Export Enhancement Measures
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Export processing zones
Marketing assistance
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Trade-related investment measures
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marketing support (e.g. AUSTRADE)
Export performance requirements
Local equity requirements (waivers)
Counter-trade requirements
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International Trade and Investment by John Gionea
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Australian government policies to
promote exports
• Multilateral 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)
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International Trade and Investment by John Gionea
Slides prepared by John Gionea
Arguments pro-protection
• the ‘infant industry’
• the ‘self-sufficiency’ (‘national defence’)
• the ‘employment’
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International Trade and Investment by John Gionea
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Arguments against protection
• Inefficient allocation of resources
• Income redistribution
• Well-being reduction
• Current Australian government policies on
protection
– Tariff Debate
– Industry Assistance
Copyright ©2003 McGraw-Hill Australia Pty Ltd PPTs t/a
International Trade and Investment by John Gionea
Slides prepared by John Gionea