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local content requirements

Page history last edited by Brian D Butler 1 yr ago

 

Local content requirements

 

regulations that require that some % be produced locally.  this is often a component of FDI rules

 

Similar protection like an import quota , but the effect is slightly different .  Rather than resulting in 1:1 price increase to consumers, the price in this case goes up, but not as much.  This is becaue the firm is still allowed to import, so the average price of componenets will now be the average of local and imported components.

 

This method of trade regulation does not produce any government revenue, nor does it produce "quota rents" (as we saw with import quotas).

 

Sometimes a company can get around the local content % requirement for certain production if they also are able to export some other products from that Country.  for example, a US car manufacturer might be able to use more imported (from US) components if they also engage in export of other parts (which might never get exported otherwise...cause tehy were too expensive,but the company does it anyways to avoig the local content requirements on the other production.

 

 

 

 

 

Investors:  should watch carefully for changes in regulations.  If local content rules change, then products athat are currently exporting might stop, and others might pick up.  Anytime that governemtn interference is eliminated (or added) to the market, there will be changes in supply chains.  Watch for opportunities.

 

 

 

 

 

 

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