6 - Trade and Investment Policy

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Global BusinessCover classprocedures

Materials to classdaily

Interactive notebookCornell format

Where to find warm-up, assignments

Review website @

haisgb.weebly.com

Resources Topics

Homework

Syllabus

Organizers

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Topic

What You Know What You Want to Know What You Learned

Name:_________________________________________________ Date: __________

KWL Chart Before you begin research on the topic in the chart list:what you know in the far left column

what you want to know in the middle columnAt the end of your research list:

what you learned in the far right column


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HomeworkCreate vocabulary cards from thevocabulary words you identify today.Due Tuesday1/ 15/13

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Chapter 6

Trade and InvestmentPolicies Impacting Global

Business


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Learning Objectives

To seehow trade and investment policies have

historicallybeen asubset of domestic policies.

To examinehowtraditional attitudes toward trade and

investment policies are changing.

To see the effects of global links in trade and investment onpolicymakers.

To understandthat nations must cooperate closely in thefuture to maintain a viable globaltrade and investment

environment.


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Rationale and oals

Chapter 2

Government policies are designed to regulate,stimulate, direct, and protect nationalactivities, resulting innational sovereignty

The domestic actions of most governments aim toincreasethe standard of livingand improvethequality of lifeof its citizens.

Additional goals include stimulating national

development and achieving full employment

7 Czinkota:International Business, 8e


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Foreign Policy Goals

Chapter 2

Nations develop foreign policy to exerciseinfluence abroadand to provide domesticbenefitssuch as:

National securityImproved trade and investment opportunities

Aid to develop markets and increase influence

Each country develops its own domestic policies, so policy

aims vary from nation to nation



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International Organizations

International Trade

Organization (ITO)

General Agreement on

Tariffs and Trade (GATT)

World Trade

Organization (WTO)


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International TradeOrganization (ITO)

General Agreement onTariffs and Trade (GATT)

Chapter 2

Signed in 1948 with 53nation members

Purpose: facilitateinternational trade

Never implemented

Purpose: facilitate trade andsettle disputes

Member nations agree tolimit tariffs on othermembers

Each member grants everyother member Most-

Favored Nation(MFN)status

Since the ITO never cameinto being, the GATT becamea permanent governing body

Global Trade

Regulation Since 1945



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Global Trade Regulation Since 1945

Chapter 2

World Trade Organization (WTO)

Replaced GATT in 1995

Purpose: Administer international trade and investment accords

Gradually reduce government subsidies to industries

Convert nontariff barriers into more transparent tariff barriers

20012010 Doha Round of WTO Negotiations

Further hasten implementation of liberalization to particularly helpimpoverished and developing nations

A difficult series of negotiationssignificant disagreementsbetween developed nations and developing WTO members

WTO movie11 Czinkota:International Business, 8e
http://www.wto.org/english/thewto_e/whatis_e/whatis_e.htmhttp://www.wto.org/english/thewto_e/whatis_e/whatis_e.htm


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Main Points of WTOStability

Consensus

Doha Round

Cancun Deadlock

Settle Disputes

Participation

Supportdevelopment

Transparency

Openness

21stcentury

Global solutions

Trading into the

futureCollaboration withother institutions

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Changes in the Global Policy

EnvironmentThree major changes have occurred over timeintheglobal policy environment:

a reductionof domestic policy influence;

a weakeningof traditional international institutions;

and a sharpeningof the conflict betweenindustrialized and developing nations.


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Reduction of Domestic Policy InfluencesCurrency flowshave increased from an average daily tradevolume of $18 billion in 1980 to $1.2 trillion in 2001.

As a result, currency flows have begun to setthe value ofexchange rates independent of trade, which in turn havenow begun to determine the level of trade.

The interactions between global and domestic financialflows have severely limited the influence ofgovernments.

To regain influence, some governmentshave tried torestrict world trade by erecting barriers, charging tariffs, andimplementing import regulations.


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Weakening of International InstitutionsThe intense links among nations and the new economicenvironment resulting from new market entrants and theencounter of different economic systems are weakening theWTO.

The International Monetary Fund (IMF) does not have thefundsavailable to satisfy the needs of all strugglingnations.

The World Bankhas been unsuccessfulin furthering theeconomic goals of the developing worldand newlyemerging market economies. Some claim that its bank policieshave created more poverty.


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Conflict Between Industrialized

and Developing NationsIn the past, it was hopedthat the gapbetweenindustrialized and developing nationswould

gradually be closed.

Although several less-developed nations haveemerged as newly industrialized countries, evenmore nations are facing grim economic

futures.

An increase in environmental awareness has ledto a furthersharpening of the conflict.


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Restrictions of Imports

Many countries including the United States have passedantidumping laws which help domestic industries byrestricting foreign products being sold below the cost ofproduction, or at prices lower than those in the home

market.

Importsare also restricted by nontariff barriers, such asbuy-domestic campaigns. It is difficult to remove thesebarriers.

Importscan also be reduced by tightening market accessand entry of foreign products through involved proceduresand inspections.


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Effects of Import RestrictionImport control may mean that the most efficient sources ofsupply are not available, resulting in second-best products orhigher costs for restricted supplies.

Import control may result in the downstream change in the

composition of imports.

Due to inefficiency,

import controls may

causea lag in

technologicaladvancements.


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Restrictions of ExportsNations control their exports for reasons of shortsupply, national security andforeign policypurposes,orthe desire toretain capital.

National securitycontrols are placed on weaponsand high-technology exports.

Although restriction of exports is a valuableinternational relations tool, it may give a countrysfirms the reputation of being unreliable suppliers and

may divert orders to firms of other nations.


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Export Promotion

Designed to help firms enter and maintain theirposition in international markets and to match orcounteract similar efforts by other nations.

Various approaches toward export promotioninclude:

knowledge transfer

direct or indirect subsidization of export activities

reducing governmental red tape for exporters

export financing and mixed aid credits toexporters

altered tax legislation for nationals living abroad


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Import Promotion

Countries that maintain large

balance-of-trade surpluses use

import promotion measures.

The Japan External Trade

Organization (JETRO) has begun to

focus on the promotion of imports to

Japan.


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The Impacts of Foreign Direct

Investment on Host Countries

Positive Impactcapital information

technology andmanagement skillstransfer

regional and sectoraldevelopment

internal competition andentrepreneurship

favorable effect onbalance of payments

increased employment

Negative Impact

industrial dominance

technologicaldependence

disturbance of economicplans

cultural change

interference by homegovernment ofmultinational corporation


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Restrictions on InvestmentMany nations that lack necessaryforeign exchange reserves restrict

exports of capital, becausecapital flight can be a majorproblem.

Once governments imposerestrictions on the export offunds, the desire to transfercapital abroad increases. Thiscreates problems for gaining newoutside investors.


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Investment Promotion

Fiscal Incentives

Financial Incentives

Nonfinancial Incentives


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Investment Promotion(cont.)Fiscal incentives are specific tax measuresdesigned to attract the foreign investor, includingspecial depreciation allowances, tax credits orrebates, special deductions for capital expenditures,tax holidays, and reduction of tax burdens.

Financial incentives offer special funding for theinvestor by providing land or building, loans, and loanguarantees.

Nonfinancial incentives can consist of guaranteedgovernment purchases, special protection fromcompetition, and investments in infrastructurefacilities.


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Bargaining Power of Multinational

Corporation and Host Country

Bargaining

Power

Time

Policy Provided/Demanded

Incentives for Investment

Continued Privileged

Treatment

Discriminating Requirements

End of Relationship/

Divestment

MNC


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U.S. Perspective on Trade and

Investment PoliciesThe U.S. seeks a positive trade policy rather thanreactive, ad hoc responses to specific situations.

Protectionist legislation can be helpful, providedit is not enacted into law.

Trade promotion authority gives Congress the

right to accept or reject treaties and agreements, butreduces the amendment procedures


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International Perspective on

Trade and Investment PoliciesFrom an international perspective, trade andinvestment negotiations must continue.

In doing so, trade and investment policy cantake either a multilateral or bilateral approach:

bilateral negotiations are carried out mainly betweentwo nations.

multilateral negotiations are carried out among anumber of nations.

6 - Trade and Investment Policy

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