Itsupply of foreign exchange for the most essential uses.

A recurrent problem for the foreign investor is

getting profi ts in and out of the host country without loss of value, which can occur when a currency is
devalued. Exhibit 6.2 illustrates how exchange controls can affect an international company’s profi ts.
Many countries maintain regulations for control of currency, and should an economy suffer a setback or
foreign exchange reserves decline severely, the controls on convertibility are imposed quickly. Local-
Content Laws. In addition to restricting imports of essential supplies to force local purchase, countries
often require a portion of any product sold within the coun try to have local content, that is, to contain
locally made parts. Thailand, for example, requires that all milk products contain at least 50 percent milk
from local dairy farmers. Contrary to popular belief, local-content requirements are not restricted to
Third World countries. The European Union has had a local-content requirement as high as 45 percent
for “screwdriver operations,” a name often given to foreign-owned assemblers, and NAFTA requires 62
percent local content for all cars coming from member countries. Import Restrictions. Selective
restrictions on the import of raw materials, ma chines, and spare parts are fairly common strategies to
force foreign industry to purchase more supplies within the host country and thereby create markets for
local industry. Al though this restriction is an attempt to support the development of domestic industry,
the result is often to hamstring and sometimes interrupt the operations of established indus tries. The
problem then becomes critical when there are no adequately developed sources of supply within the
country. Tax Controls. Taxes must be classifi ed as a political risk when used as a means of