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Block 1 Session 16: Economic stability and analysing growth potential –…
Block 1 Session 16: Economic stability and analysing growth potential – Expanding into overseas markets
The role of trade tariffs and intellectual property
The WTO agreements cover goods, services and intellectual property. They spell out the principles of liberalization, and the permitted exceptions.
Include individual countries’ commitments to lower customs tariffs and other trade barriers, and to open and keep open services markets.
They prescribe special treatment for developing countries.
They require governments to make their trade policies transparent by notifying the WTO about laws in force and measures adopted, and through regular reports by the secretariat on countries’ trade policies.
The Results of the Uruguay Round of Multilateral Trade Negotiations
60 agreements, annexes, decisions and understandings. In fact, the agreements fall into a simple structure with six main parts: an umbrella agreement (the Agreement Establishing the WTO); agreements for each of the three broad areas of trade that the WTO covers (goods, services and intellectual property); dispute settlement; and reviews of governments’ trade policies.
Tariffs: more bindings and closer to zero
commitments to cut and “bind” their customs duty rates on imports of goods
There will also be fewer products charged high duty rates
eliminate import duties and other charges on these products
This all means a substantially higher degree of market security for traders and investors.
commitments to reduce domestic support and export subsidies for agricultural products
Non-tariff barriers: red tape, etc
import licensing: simple, transparent and predictable
rules for the valuation of goods at customs: fair, uniform and neutral system
preshipment inspection (further checks on imports): non-discrimination, transparency, protection of confidential business information, avoiding unreasonable delay
rules of origin: made in ... where? : transparent; that they do not have restricting, distorting or disruptive effects on international trade; that they are administered in a consistent, uniform, impartial and reasonable manner; and that they are based on a positive standard (in other words, they should state what does confer origin rather than what does not).
investment measures: no member shall apply any measure that discriminates against foreigners or foreign products, also outlaws investment measures that lead to restrictions in quantities
Intellectual property: protection and enforcement
refers to creations of the mind
how general provisions and basic principles of the multilateral trading system apply to international intellectual property
what the minimum standards of protection are for intellectual property rights that members should provide
which procedures members should provide for the enforcement of those rights in their own territories
how to settle disputes on intellectual property between members of the WTO
special transitional arrangements for the implementation of TRIPS provisions.
Copyright, trademarks, industrial design, patents, undisclosed information, anti-competitive practices in licensing, enforcement, tech transfer, transitional arrangements, institutional arrangements, cooperation with other intergovernmental orgs,
Ease of doing business
World bank index
Complexity of business regulations & strength of property rights protections
High ranking = regulatory env more conductive to starting and operating local firm
Includes 9 business activities:
starting a business
dealing with construction permits
registering property
getting credit
protecting investors
paying taxes
trading across borders
enforcing contracts
resolving insolvency
Outsourcing: onshore vs offshore
Increasingly common practice - businesses discovered they can outsource any element of value chain (strategic & complex rather than old make or buy test)
Cost reduction is usually a key driver
Outsourcing is as old as society - economic principle of division of labour, fundamental to any community
Selling directly or outsource to agent
Operate own transport
Quality key consideration
Outsourcing can be defined as the devolution of operations to third parties, while retaining responsibility for it
Overseas multinationals, rather than devolving the business to third parties, typically set up subsidiaries which they manage themselves
In the last 50 years, the list of outsourced services has grown dramatically
Ranked the top reasons to outsource
•
Reduce costs
• Improve focus
• Increase variable cost element
• Access to skills
• Grow revenue
• Improve quality
• Conserve capital
• Innovate
Globalisation has added a new dimension to the surge in outsourcing - any element of value chain and range of destinations grown
In recent years many businesses have moved their outsourcing offshore, which has become technically possible in a global economy with advanced technology and freedom of capital movement
It is important that businesses have a clear understanding both of the savings and the risks (provoke politician furore)
Risks of offshoring
Distance
- transport costs and increased time in supply chain, access problems, time zone comms
Currency
- exchange rate movement, comparative cost adv can be eroded
Legal system
- more gov inteference, local rules & regs, intellectual property rights & insurance difficult or expensive, case of disputes, local courts may not kindly on international, requires good understanding of legal implications
Political or economic instability
- risk of disruption to supply chain, may be reluctant to be involved with countries which cannot guarantee the security of foreign businessmen
Quality and reliability of services
- availability, skills, education of workforce; for IT, data security, backup and disaster recovery needs evaluating
Language and culture barriers
- translator cost and problem resolution speed; contract enforce-ability varies; bribery to be avoided
Damage to brand
- labour issues (child, conditions, length of work week, living conditions) - West obliged set standards
Assessment
May prefer choose a destination closer to the core business or market - near-shoring
Consider country's share of outsourcing - not just cost
As outsourcing can attract adverse publicity, it is important that businesses have a clear understanding both of the savings and the risks
Returning manufacturing on-shore difficult
International trade and restriction of trade
Business needs to be clear why it wants to trade internationally - opportunities to grow revenues, but brings considerable challenges
If there is a point on which most economists agree, it is that trade among nations makes the world better off
When a firm or an individual buys a good or a service produced more cheaply abroad, living standards in both countries increase
product may better fit their needs than similar domestic offerings or it may not be available domestically
Foreign producer benefits from more sales and by earning foreign exchange
Domestic producer loses a sale. Usually, however, the buyer gains more than the domestic seller loses
Except in cases in which the costs of production do not include such social costs as pollution, the world is better off when countries import products that are produced more efficiently in other countries
Those who perceive themselves to be affected adversely by foreign competition have long opposed international trade
Why countries trade
Comparative rather than absolute costs - even if more productive on all goods, would still benefit from trade
Because of comparative advantage, trade raises the living standards of both countries
Differences in comparative advantage may arise for several reasons - role of labour and capital, so-called factor endowments, as a determinant of advantage
Economists today think that factor endowments matter, but that there are also other important influences on trade patterns (Baldwin, 2008).
episodes of trade opening are followed by adjustment not only across industries, but within them as well
Increase in competition - pressure on profits, contracting less efficient firms, making room for more efficient
Bring with them better technologies and new product varieties
An even greater benefit may be the more efficient investment spending that results from firms having access to a wider variety and quality of intermediate and capital inputs - ). By enhancing overall investment and facilitating innovation, trade can bring sustained higher growth
economic models used to assess the impact of trade typically neglect influences involving technology transfer and pro-competitive forces such as the expansion of product varieties - concluded benefits from reform larger than conventional models suggest
Why trade reform is difficult
Trade continues to global efficiency - higher level of economic welfare
Trade also brings dislocation to those firms and industries that cannot cut it - seek barriers (called tariffs) and quotas to raise the price or limit the availability of imports
Benefits of trade are spread diffusely and its beneficiaries often do not recognise how trade benefits them. As a result, opponents are often quite effective in discussions about trade.
Trade policies
Reforms since World War II have substantially reduced government-imposed trade barriers
Policies to protect domestic industries vary - tariffs higher in certain sectors and among certain country groups
trade barriers affect some countries more than others. Often hardest hit are less developed countries, whose exports are concentrated in low-skill, labour-intensive products that industrialised countries often protect
The World Trade Organisation referees international trade. Agreements devised since 1948 by its 153 members promote non-discrimination and facilitate further liberalisation in nearly all areas of commerce, including tariffs, subsidies, customs valuation and procedures, trade and investment in service sectors, and intellectual property. Commitments enforced through a powerful and carefully crafted dispute settlement process.
Under the rules-based international trading system centred in the WTO, trade policies have become more stable, more transparent, and more open
WTO is a key reason why the global financial crisis did not spark widespread protectionism
the institution faces big challenges in reaching agreements to open global trade further. Despite successes, restrictive and discriminatory trade policies remain common.