Import Quotas

Import quotas are limitations on the quantity of goods that can be imported into the country during a specified period of time. An import quota is typically set below the free trade level of imports. In this case it is called a binding quota. If a quota is set at or above the free trade level of imports then it is referred to as a non-binding quota. Goods that are illegal within a country effectively have a quota set equal to zero. Thus many countries have a zero quota on narcotics and other illicit drugs. There are two basic types of quotas: absolute quotas and tariff-rate quotas. Absolute quotas limit the quantity of imports to a specified level during a specified period of time. Sometimes these quotas are set globally and thus affect all imports while sometimes they are set only against specified countries. Absolute quotas are generally administered on a first-come first-served basis. For this reason, many quotas are filled shortly after the opening of the quota period. Tariff-rate quotas allow a specified quantity of goods to be imported at a reduced tariff rate during the specified quota period. In the US in 1996, milk, cream, brooms, ethyl alcohol, anchovies, tuna, olives and durum wheat were subject to tariff-rate quotas. Other quotas exist on peanuts, cotton, sugar and syrup. In the US most quotas are administered the US Customs Service. The exceptions include dairy products, administered by the Department of Agriculture, and watches and watch movements, administered by the Departments of the Interior and the Commerce Department.

Voluntary Export Restraints (VERs)
A voluntary export restraint is a restriction set by a government on the quantity of goods that can be exported out of a country during a specified period of time. Often the word voluntary is placed in quotes because these restraints are typically implemented upon the insistence of the importing nations. Typically VERs arise when the import-competing industries seek protection from a surge of imports from particular exporting countries. VERs are then offered by the exporter to appease the importing country and to avoid the effects of possible trade restraints on the part of the importer. Thus VERs are rarely completely voluntary. Also, VERs are typically implemented on a bilateral basis, that is, on exports from one exporter to one importing country. VERs have been used since the 1930s at least, and have been applied to products ranging from textiles and footwear to steel, machine tools and automobiles. They became a popular form of protection during the 1980s, perhaps in

part because they did not violate countries' agreements under the GATT. As a result of the Uruguay round of the GATT, completed in 1994, WTO members agreed not to implement any new VERs and to phase out any existing VERs over a four year period. Exceptions can be granted for one sector in each importing country. Some interesting examples of VERs occured with auto exports from Japan in the early 1980s and with textile exports in the 1950s and 60s.

Textile VERs
Another interesting effect of VERs occurred in the textile industry beginning in the 1950s. In the mid 50s, US cotton textile producers faced increases in Japanese exports of cotton textiles which negatively affected their profitability. The US government subsequently negotiated a VER on cotton textiles with Japan. Afterwards, textiles began to flood the US market from other sources like Taiwan and South Korea. The US government responded by negotiating VERs on cotton textiles with those countries. By the early 1960s, other textile producers in the US, who were producing clothing using the new synthetic fibers like polyester, began to experience the same problem with Japanese exports that cotton producers faced a few years earlier. So VERs were negotiated on exports of synthetic fibers from Japan to the US. During this period European textile producers were facing the same pressures as US producers and the EEC negotiated similar VERs on exports from many southeast Asian nations into the EEC. This process continued until its complexity led to a multilateral negotiation between the exporters and importers of textile products around the world. These negotiations resulted in the Multi-Fiber Agreement (MFA) in the early 1970s. The MFA specified quotas on exports from all major exporting countries to all major importing countries. Essentially it represented a complex arrangement of multilateral VERs. The MFA provided an assured upper limit (ceiling) to the extent of competition that import-competing firms could expect in the US and the EEC. This type of arrangement has sometimes been called an orderly market arrangement. It is also a reasonable example of what has been referred to as managed trade. The MFA was renewed periodically throughout the 70s, 80s and 90s. However, the Uruguay round of the GATT, completed in 1994, renamed the MFA to the Agreement on Textiles and Clothing (ATC) and specified a ten year transition period during which the ATC will be eliminated.

Foreign direct investment
Foreign direct investment (FDI) or foreign investment refers to the net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor.[1] It is the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital as

shown in the balance of payments. It usually involves participation in management, jointventure, transfer of technology and expertise. There are two types of FDI: inward foreign direct investment and outward foreign direct investment, resulting in a net FDI inflow (positive or negative) and "stock of foreign direct investment", which is the cumulative number for a given period. Direct investment excludes investment through purchase of shares.[2] FDI is one example of international factor movements. FDI is a measure of foreign ownership of productive assets, such as factories, mines and land. Increasing foreign investment can be used as one measure of growing economic globalization. The figure below shows net inflows of foreign direct investment in the United States. The largest flows of foreign investment occur between the industrialized countries (North America, Western Europe and Japan). But flows to non-industrialized countries are increasing sharply. US International Direct Investment Flows:[3] Period 1960-69 1970-79 1980-89 1990-99 2000-07 Total FDI Outflow FDI Inflows Net $ 42.18 bn $ 5.13 bn + $ 37.04 bn $ 122.72 bn $ 40.79 bn + $ 81.93 bn $ 206.27 bn $ 329.23 bn - $ 122.96 bn $ 950.47 bn $ 907.34 bn + $ 43.13 bn $ 1,629.05 bn $ 1,421.31 bn + $ 207.74 bn $ 2,950.69 bn $ 2,703.81 bn + $ 246.88 bn

A foreign direct investor may be classified in any sector of the economy and could be any one of the following:[citation needed]
• • • • • • • •

an individual; a group of related individuals; an incorporated or unincorporated entity; a public company or private company; a group of related enterprises; a government body; an estate (law), trust or other social institution; or any combination of the above.

[edit] Methods
The foreign direct investor may acquire voting power of an enterprise in an economy through any of the following methods:

• • • •

by incorporating a wholly owned subsidiary or company by acquiring shares in an associated enterprise through a merger or an acquisition of an unrelated enterprise participating in an equity joint venture with another investor or enterprise

Foreign direct investment incentives may take the following forms:[citation needed]
• • • • • • • • • • • • • • • •

low corporate tax and income tax rates tax holidays other types of tax concessions preferential tariffs special economic zones EPZ - Export Processing Zones Bonded Warehouses Maquiladoras investment financial subsidies soft loan or loan guarantees free land or land subsidies relocation & expatriation subsidies job training & employment subsidies infrastructure subsidies R&D support derogation from regulations (usually for very large projects)

[edit] Global Foreign Direct Investment
UNCTAD said that there was no significant growth of Global FDI in 2010. In 2010 was $1,122 billion and in 2009 was $1.114 billion. The figures was 25 percent below the precrisis average between 2005 to 2007.[4]

[edit] Foreign direct investment in the United States
The United States is the world’s largest recipient of FDI. More than $325.3 billion in FDI flowed into the United States in 2008, which is a 37 percent increase from 2007. The $2.1 trillion stock of FDI in the United States at the end of 2008 is the equivalent of approximately 16 percent of U.S. gross domestic product (GDP).55 Benefits of FDI in America: In the last 6 years, over 4000 new projects and 630,000 new jobs have been created by foreign companies, resulting in close to $314 billion in investment.[citation needed] Unarguably, US affiliates of foreign companies have a history of paying higher wages than US corporations.[citation needed] Foreign companies have in the past supported an annual US payroll of $364 billion with an average annual compensation of $68,000 per employee.[citation needed]

Increased US exports through the use of multinational distribution networks. FDI has resulted in 30% of jobs for Americans in the manufacturing sector, which accounts for 12% of all manufacturing jobs in the US.[5] Affiliates of foreign corporations spent more than $34 billion on research and development in 2006 and continue to support many national projects. Inward FDI has led to higher productivity through increased capital, which in turn has led to high living standards.[6]

[edit] Foreign direct investment in China
Starting from a baseline of less than $19 billion just 20 years ago, FDI in China has grown to over $300 billion in the first 10 years. China has continued its massive growth and is the leader among all developing nations in terms of FDI.[citation needed] Even though there was a slight dip in FDI in 2009 as a result of the global slowdown, 2010 has again seen investments increase.[citation needed]

[edit] Foreign direct investment in India
Starting from a baseline of less than USD 1 billion in 1990, a recent UNCTAD survey projected India as the second most important FDI destination (after China) for transnational corporations during 2010-2012. As per the data, the sectors which attracted higher inflows were services, telecommunication, construction activities and computer software and hardware. Mauritius, Singapore, the US and the UK were among the leading sources of FDI. FDI for 2009-10 at USD 25.88 billion was lower by five per cent from USD 27.33 billion in the previous fiscal. Foreign direct investment in August dipped by about 60 per cent to aprox. USD 34 billion, the lowest in 2010 fiscal, industry department data released showed. [7]

[edit] Foreign direct investment and the developing world
Foreign investment can be a significant driver of development in poor nations.[citation needed] It provides an inflow of foreign capital and funds, in addition to an increase in the transfer of skills, technology, and job opportunities.[citation needed] Many of the East Asian tigers such as China, South Korea, Malaysia, and Singapore benefited from investment abroad.[citation needed] The Commitment to Development Index ranks the "developmentfriendliness" of rich country investment policies.

Export Reasons
Increasing sales

Exporting is one way of increasing your sales potential; it expands the "pie" that you earn money from, otherwise you are stuck trying to make money only out of the local market. In the case of South Africa, market is relatively small in comparison to the markets of North America, Europe and Asia. While the local market may represent enough sales potential for smaller firms, for medium and larger companies the local market is just too small and the only way to expand sales is to export. It should be said, however, if you are not yet selling regionally and nationally, then you should first aiming at expanding your market share within the local market. Once you have saturated the national market, only then should you look beyond the bordersIt has been said that there are no sales barrier that automatically begins where your border ends. Increased sales also impact upon your profitability (although not always positively), your productivity by lowering unit costs, and may increase your firm's perceived size and stature, thereby affecting its competitive position compared with other similar-sized organisations. What is more, research and development (R&D) and other costs can also be offset against a larger sales base, or the move into exports may contribute to the company's general expansion. For others, exports may be a way of testing the opportunities for overseas licensing, franchising or production. Increasing profits Clearly, you are not likely to enter the export market in order to make a loss. Companies generally strive to make profits and the bigger the profits the better. In many instances, exports can contribute to increased profits because the average orders from international customers are often larger than they are from domestic buyers, as importers generally order by the container instead of by the pallet (thereby affecting both total sales and total profits). Some products - especially those that are unique or very innovative in nature may also command greater profit margins abroad than in the local market. Having said this, it is also not uncommon - indeed, it is highly likely - that you may receive smaller profit margins from your export sales compared with the local market. The reason for this is the highly competitive nature of global markets that forces exporters to lower prices, squeeze profits and reduce costs. You may also find that in some markets you generate higher profit margins, while in other markets your profit margins are considerably lower. Reducing risk and balancing growth It is risky being bound to the domestic market alone. Export sales to a variety of diverse foreign markets can help reduce the risk that the company may be exposed to because of fluctuations in local (and foreign) business cycles. At any one time, the UK, Australia and Germany will be enjoying different growth rates. By selling in all of these countries, the risk of low growth in one or more of these countries will be offset by increased growth in the others, thus resulting in a balanced portfolio of growth overall. In addition, with the challenging labour conditions that many firms in South Africa face today, exports may help to create and/or maintain jobs thus reducing the risk of a labour dispute that could otherwise cripple the company.

Lower unit costs Exports help to put idle production capacity to work. This is generally achieved the more efficient utilisation of the existing factory, machines and staff. What is more, because you are now selling more products without increasing total costs to the same extent, this has the effect of lowering your unit costs which represents a more productive overall operation. Lower unit costs make a product more competitive in the local marketplace as well as in foreign markets, and/or can contribute to the firm's overall profitability. Economies of scale Exporting is an excellent way to enjoy pure economies of scale with products that are more "global" in scope and have a wider range of acceptance around the world (in other words, they can be used in other parts of the world without much adaptation). This is in contrast to products that must be adapted for each market, which is expensive and time consuming and requires more of an investment. The newer the product, the wider range of acceptance in the world, especially to younger "customers," often referred to as the "global consumer". With increased export production and sales, you can achieve economies of scale and spread costs over a larger volume of revenue. You reduce average unit costs and increase overall profitability and competitiveness. Long-term exports may enable a company to expand its production facilities in order to achieve an economic level of production. (This should not be confused with increased throughput on existing capacity, as discussed above.) Minimising the effect of seasonal fluctuations in sales Being in the Southern Hemisphere, South Africa has seasons that are opposite to those in the Northern Hemisphere. For companies that sell seasonal goods such as fruit growers, and swimwear or suntan lotion manufacturers, being able to sell these goods in the Northern Hemisphere when our season ends, helps achieve a longer and more stable sales pattern. This increases the sales potential for these goods and also helps reduce risk. Small and/or saturated domestic markets One good reason to begin exporting is when the local market is too small to support a firm's output or when the market becomes saturated. For companies that produce heavy industrial machinery or that have invested in large factories, they need to be able to sell enough of their manufactured goods to justify the investment and to insure that the unit price of goods are kept acceptably low. With relatively small markets such as South Africa, it is usually not long before the local market becomes saturated and offers limited additional opportunities for sales. Many of South Africa's larger manufacturers have had to turn to foreign markets to justify their existence. Examples include most of the motor vehicle manufacturers such as Opel, VW and BMW; the paper producers such as Mondi and Sappi; and mining houses such as Anglo-American and De Beers. The same is true of

international firms such as Volvo, Philips and Roche. They only way firms such as these can justify their investment is to sell abroad because their respective local markets are just too small. Overcoming low growth in the home market It is not uncommon for a recession in the local market to act as a spur for companies to enter export markets that may offer greater opportunities for sales. While this may have the benefit of offering ongoing sales potential for the firm in question, the danger with this approach is that when the local market improves, these companies abandon their export markets to focus on the now buoyant local market. Overseas importers become disillusioned with this type of exporter and often see all firms from South African being the same and will want nothing more to do with South African exporters, even if they are serious. Extending the product life-cycle All products go through a product life-cycle. In the beginning they are novel and sales increase quite dramatically, then sales level off and they become what is referred to as mature products and eventually sales start to decrease and the product goes into decline. Now, a product that has entered its decline stage may have a life elsewhere in the world and by finding a market where this product could be sold anew, you are essentially extending the life-cycle of the product. Alternatively, even if it is a fairly common product, it may also be nearing the end of its life cycle in other overseas markets (particularly in bigger markets such as Germany, the UK and the US) and they may decide to discontinue the product. Although the market may have declined to a point that makes it uneconomical for these companies to continue manufacturing the product in question, the market may still be big enough for you to supply the declining market. This has the effect of making more efficient use of the existing factory infrastructure and other investment spent on producing the product. This extends sales, lowers the unit costs even further and may allow for higher margins to be generated. When you have a product that is nearing its life cycle, you should always strive to see if you can find a market for the product abroad. Improving efficiency and product quality The global market is a highly competitive place and by participating in this marketplace, you need to become equally efficient and quality conscious. It is generally the case that successful exporters are also very successful in their home markets because of their heightened efficiency and focus on product quality. Untapped markets A company may have a very unique product that is not yet available elsewhere in the world. In this instance, these untapped markets are likely to drive the firm's export

activities. Other firms may want to take advantage of high-volume purchases in large markets overseas, such as in the US, Europe and Asia. Addressing customer, competitor and cost factors The more formal theory of internationalisation discusses customer, competitor and cost factors that drive the internationalisation process. The theory argues that in some cases companies may go global in response to their customers moving abroad. Alternatively, they may follow their competitors abroad, or may decide to enter a particular foreign market in order to attack an overseas competitor that has entered the firm's domestic market, in the competitor's own home market. Finally, companies may go international to take advantage of lower labour costs, skilled workers or other cost factors (such as lower telecommunication or energy costs) that are much better in a particular foreign market. For example, expanding into India to take advantage of programming skills and lower salaries could translate into a major advantage for a local software development firm. It should be said, however, that these factors are more likely to be relevant to larger firms, instead of small scale export operations. Read more: kUHK

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