11- Wto and Gatt

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Rationale and Goals of Tradeand Investment Policies

Government policies are designed to regulate, direct,and protect national activities. The exercise of these

policies is the result of national sovereignty, whichprovides a government with the right to shape theenvironment of the country and its citizens.

The domestic policy actions of most governments aim

to increase the standard of living of citizens and toimprove the quality of life, and to achieve fullemployment.

These policies affect international trade andinvestment indirectly.



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Rationale and Goals of Tradeand Investment Policies (cont.)

In more direct ways, a country may also pursuetechnology transfer from abroad or the exclusion of

foreign industries to the benefit of domestic infant firms.

Government officials can also develop regulations onimports to protect citizens.

Nations institute foreign policy measures designedwith domestic concerns in mind but explicitly aimedto exercise influence abroad.

A major foreign policy goal is national security.



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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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The International TradeOrganization

In 1948, the ITO represented anagreement among 53 countries

to: Aid in international commercialpolicies, restrictive business practices,commodity agreements, employment and reconstruction, and economicdevelopment and internationalinvestment.

It developed a constitution for a newUnited Nations agency.

The ITO was never implemented.



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The General Agreement onTariffs and Trade

GATT started in 1947 as a set of rules toensure nondiscrimination, transparent

procedures, the settlement of disputes, andthe participation of the lesser-developedcountries in international trade.

GATT used tariff concessions to limit the level of tariffsthat would be imposed on other GATT members.

The Most Favored Nation clause calls for eachmember country to grant every other member countrythe same treatment that it accords with any othercountry with respect to imports and exports.



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The World Trade OrganizationThe WTO was introduced in1995 and administers

international trade andinvestment accords.

In 2002, the Dola Round endedthe first stage of implementation.

The aim is to further hastenimplementation of liberalization tohelp the impoverished anddeveloping nations.



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Changes in the Global PolicyEnvironment

Three major changes have occurred overtime in the global policy environment:

a reduction of domestic policy influence;

a weakening of traditional internationalinstitutions;

and a sharpening of the conflict betweenindustrialized and developing nations.



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Restrictions of ImportsMany countries including the United States havepassed antidumping laws which help domesticindustries by restricting foreign products being sold

below the cost of production, or at prices lower thanthose in the home market.

Imports are also restricted by nontariff barriers, suchas buy-domestic campaigns. It is difficult to remove

these barriers.

Imports can also be reduced by tightening market access and entry of foreign products throughinvolved procedures and inspections.



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Effects of Import RestrictionImport control may mean that the most efficient sourcesof supply are not available, resulting in second-best products or higher costs for restricted supplies.

Import control may result in the downstream change inthe composition of imports.

Due to inefficiency,

import controls may

cause a lag intechnological

advancements.



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Restrictions of ExportsNations control their exports for reasons of short supply, national security and foreignpolicy purposes, or the desire to retain

capital.National security controls are placed onweapons and high-technology exports.

Although restriction of exports is a valuable

international relations tool, it may give acountrys firms the reputation of beingunreliable suppliers and may divert orders tofirms of other nations.



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Export PromotionExport promotion is designed to help firms enter andmaintain their position in international markets and tomatch or counteract similar efforts by other nations.

Various approaches toward export promotioninclude:

knowledge transfer

direct or indirect subsidization of export activitiesreducing governmental red tape for exporters

export financing and mixed aid credits toexporters

altered tax legislation for nationals living abroad



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Import PromotionCountries 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 DirectInvestment 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 dominancetechnologicaldependence

disturbance of economicplans

cultural changeinterference by homegovernment ofmultinational corporation



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Restrictions on Investment

Many nations that lack necessaryforeign exchange reserves restrict

exports of capital, becausecapital flight can be a majorproblem.

Once governments impose

restrictions on the export of funds, 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 or

rebates, 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 MultinationalCorporation and Host Country

Bargaining

Power

Time

Policy Provided/Demanded

Incentives for Investment

Continued Privileged

Treatment

Discriminating Requirements

End of Relationship/

Divestment

MNC

Documents

11- Wto and Gatt