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GTAP Resource #4497

"Modelling Local Content Requirements: Quantitative Restrictions in a CGE Model"
by Stone, Susan, Dorothee Flaig and Frank van Tongeren

When the economic slowdown started in 2008, many governments came under intense pressure to provide quick solutions to large employment problems. At the same time, many governments felt at a loss to effectively influence domestic activities in the face of global value chains and the international fragmentation of production.
In a time of budgetary austerity, various types of localisation requirements began to be seen as ways to boost domestic industry without incurring significant fiscal outlay. By mandating local sourcing of goods and services, the real cost of these policies is born by a large group of purchasers and competing international suppliers , while the benefits fall on a small set of domestic firms.
Thus, local content requirements (LCRs) became among the fastest growing non-tariff measures affecting trade flows. Historically LCRs were usually attached to foreign direct investment as means of generating domestic jobs. By mandating a certain percentage of inputs to be purchased domestically, or a certain percentage of people employed locally, governments were looking to guarantee that anticipated spillovers from these projects would be realised. Today, LCRs are being used as a way for industries to develop expertise in emerging high technology and renewable energy sectors. Related to this is the desire to obtain a portion of the vast and lucrative business associated with large multinationals and global value chains (Hufbauer et al., 2013).
LCRs use quantities rather than prices to influence the geographic distribution of purchases. The political appeal of LCRs is strong as they represent no financial outlays. As opposed to price preferences for domestic firms, the cost imposed on purchasers is opaque and often totally hidden. The WTO and many RTA agreements are not clear with respect to quantity restrictions. For example, quantity restrictions only violate provisions under the Government Procurement Agreement (GPA) of the WTO fo...

Resource Details (Export Citation) GTAP Keywords
Category: 2014 Conference Paper
Status: Published
By/In: Presented at the 17th Annual Conference on Global Economic Analysis, Dakar, Senegal
Date: 2014
Created: Flaig, D. (4/15/2014)
Updated: Flaig, D. (7/21/2014)
Visits: 1,764
- Non-Tariff barriers
- Non-Tariff measures in services
- Not Applicable

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