1. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 6–16–1 Chapter 6 Instruments of trade and investment policies Protectionism Free Trade the trade policy pendulum

2. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 6–26–2 Lecture plan Protectionist vs free trade policies prior to World War 2 Barriers to trade – e.g. tariff and non-tariff barriers, barriers to services Export enhancement measures – subsidies – financial assistance – marketing assistance Arguments pro and against protection

3. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 6–36–3 The ‘pendulum’ of trade policy: between free trade and protectionism 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)

4. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 6–46–4 Two groups of trade policy instruments Protection measures – barriers to trade in goods and services Export enhancement measures

5. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 6–56–5 Barriers to trade and investment Tariff barriers Non-tariff barriers (e.g. quotas, standards, procurement policies) Export restrictions Import restrictions Barriers to trade in services Financial limits (e.g. exchange controls, profit remittance limits) Limits on FDI entry and operations

6. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 6–66–6 Trade and tariff barriers Tax imposed on imported physical goods – effects of an indirect tax Tariffs – oldest form of trade policy –specific, ad valorem and compound duties Good for government Good for producers –but reduces efficiency Bad for consumers

7. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 6–76–7 Measuring tariff schedules —unweighted average A = 10% B = 5% C = 8% D = 7% 10+5+8+7 UWA = ------------- = 7.5% 4

8. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 6–86–8 Measuring tariff schedules —weighted average ATR = (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 10010 B 600 5 C 150 8 D 150 7 Weights: A (0.10); B (0.60); C (0.15): D (0.15).

9. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 6–96–9 Price effects of an import duty A 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).

10. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 6–10 Non-tariff barriers: import quotas Import quota –restriction on quantity of some goods imported into a country Quotas (quantitative restrictions) – unilateral quotas – negotiated bilateral or unilateral quota e.g. ‘voluntary export quotas’ – tariff quotas – embargoes/import bans (‘zero imports’)

11. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 6–11 Other non-tariff barriers Anti-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 policies

12. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 6–12 Trade defence instruments Anti-dumping duties –leading initiators: India, US, EU, Argentina, South Africa and Australia –most affected economies: China, Korea Rep., Chinese Taipei, Japan and Russia. Countervailing (anti-subsidy) duties Safeguards Need for simplification and clarification of WTO rules

13. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 6–13 Trade barriers: export restrictions Export bans – timber logs (Malaysia) – US trade with Cuba, Libya Export duties/taxes – tax on grain exports (Argentina) Minimum export prices (e.g. Brazil on coffee) Exclusive exports by state-trading enterprises (e.g. India)

14. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 6–14 Trade barriers: barriers to services trades ‘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

15. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 6–15 Foreign investment controls Rejection of all foreign direct investment Limitations on FDI (Mexico, Malaysia, South Korea) Local content regulations Export performance

16. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 6–16 Export enhancement measures Subsidies – export subsidies under agricultural assistance schemes Financial assistance, e.g. – export credit support – export credit insurance Tax incentives – tax holidays – tax concessions – indirect-tax concessions

17. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 6–17 Export enhancement measures Export processing zones Marketing assistance marketing support (e.g. AUSTRADE) Trade-related investment measures export performance requirements local equity requirements (waivers) Countertrade requirements

18. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 6–18 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)

19. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 6–19 Arguments pro-protection Infant industry Self-sufficiency (national defence) Employment

20. Copyright  2006 McGraw-Hill Australia Pty Ltd. PPTs t/a International Trade and Investment: An Asia-Pacific Perspective 2e by Gionea. Slides prepared by John Gionea.. 6–20 Arguments against protection Inefficient allocation of resources Income redistribution Reduction in well-being Current Australian government policies on protection –tariff debate –industry assistance