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Trade and Investment

1. Definitions and statistics
• FDI vs. Portfolio Investment;
• FDI forms: new equity capital, reinvested earnings, net borrowing;
• TRIMs: local content, export performance;
• FDI inflows 650bl. in 2004 compared to 1.400bl. in 2000. Main destinations (2004) US (96bl), UK (85bl), China (60bl.). Main sources: US (229bl.), UK (65bl.), Luxembourg (60bl.).
2. FDI and Trade Theory
• Investment and extension of Trade based on Ricardo's principles: decreasing agency costs testified by intra-firm trade;
• Investment as a mean for intangible asset protection, information flow fostering and effective coordination.
3. Government incentives
• Neo-classical theory: lessie fair ensures optimal level;
• M.Porter: cluster creation;
• Local content requirement may ofset subsidies, transfer pricing and tariff cheating.
4. Investment as tariff-wall jumping
• Creates jobs but decreases consumer welfare.
5. Defence and National Security
• Vital sectors in US: real property and fisheries;
• Omnibus Trade and Competitiveness Act: a mean to be protected from bankruptcy.
6. GATT and Investment
• FIRA panel: complaint by the United States regarding certain undertakings required from foreign investors by the Canadian authorities as conditions for the approval of investment projects, the Panel concluded the local content requirements were inconsistent with the national treatment obligation but the export performance requirements were not inconsistent with GATT obligations.
7. TRIM agreement
• Limited coverage: only Goods
• Illustrative list of TRIMs inconsistent with the
  a) National Treatment) obligation: (1) local content and (2) trade balancing requirements;
  b) prohibition on imposition of Quantitative Restrictions: (1) foreign exchange balancing requirements (2) restrictions on exports,
• Export incentives and export performance requirements are not covered by the TRIM.