Introduction
Arguments for government intervention in international trade take two paths: political and economic (Hill 2011, p205). Political intervention is concerned with protection of certain groups within the nation. These groups are usually the producers who have a lot to gain at the expense of consumers. On the other hand, economic arguments for intervention are concerned with increasing the wealth of the nation to the benefit of all i.e. producers and consumers. This paper discusses the arguments for the protectionist measures and the instruments governments apply in controlling trade and foreign direct investments. Firstly the instruments for trade policy available to governments are defined. The arguments for intervention are then looked at. Following this, the challenges and opportunities faced by international companies wishing to expand into these controlled markets are then analysed and discussed with examples. Finally conclusions are drawn from the analysis and recommendations made on multi-national strategies to adopt in harnessing opportunities availing.
Trade policy instruments
Governments have at their disposal various instruments to use in trade policing. The most common are briefly explained below;
Tariffs – Hill (2011, p199) defines this as a tax levied on imports or exports. The tax may be fixed (specific) or as a percentage of the value of the goods (ad valorem). Import tariffs help governments to increase revenue, protect local producers who gain and affect consumers who lose through higher priced goods. Import tariffs promote inefficiencies in local industries as goods are produced that could be more efficiently produced abroad. Export tariffs are less common. They are used to raise revenue on exports an...
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The light of the global recession, assess the likely economics effects of an increase in protectionism on the world economy. (15 marks)
Office of Industries, U.S. International Trade Commission.(2009).Export controls: an overview of their use, economic effects, and treatment in the global trading system. Retrieved from United States International Trade Commission http://www.usitc.gov/publications/332/working_papers/ID-23.pdf
The United States has for over two centuries been involved in the growing world economy. While the U.S. post revolutionary war sought to protect itself from outside influences has since the great depression and world war two looked to break trade restrictions. The United States role in the global economy has grown throughout the 20th century and as a result of several historical events has adopted positions of both benefactor and dependent. The United States trade policy has over time shifted from isolationist protectionism to a commitment to establishing world-wide free trade. Free trade enterprise has developed and grown through organizations such as the WTO and NAFTA. The U.S. in order to obtain its free trade desires has implemented a number of policies that can be examined for both their benefits and flaws. Several trade policies exist as options to the United States, among these fair trade and free trade policies dominate the world economic market. In order to achieve economic growth the United States has a duty to maintain a global trade policy that benefits both domestic workers and industry. While free trade gives opportunities to large industries and wealthy corporate investors the American worker suffers job instability and lower wages. However fair trade policies that protect America’s workers do not help foster wide economic growth. The United States must then engage in economic trade policies that both protect the United States founding principles and secure for tomorrow greater economic stability.
With so much focus on the positive elements of free trade, the negative aspects of an open system are often overlooked. However, they do exist, and protectionism is needed. Consequently, safeguards are built into the system. States look out for their own good, whether that is through the use of escape clauses or the choice of the optimal forum for dispute settlement based on the precedent they do or do not want set. This paper argues that protectionism is valuable and inherent in the current system; however, not enough. Powerful states exploit weaker states, and “free trade” exacerbates the problem. I will first discuss why free trade does not work. Then, I will explain how the current system enables the inherent protectionist attitude of states. Finally, I will analyze the fairness of the system.
With Europe in control, “the policies of the governing powers redirected all African trade to the international export market. Thus today, there is little in the way of inter-African trade, and the pattern of economic dependence continues.” Europeans exported most of the resources in Africa cheaply and sold them costly, which benefited them, but many Africans worked overtime and were not treated with care.
Industrialized nations operate using a tariff structure referred to as tariff escalation. This is characterized by rising rates that give greater protection to intermediate and finished products than to primary commodities. Raw materials may be imported at a low tariff rate but both the nominal and effective tariff rates increase at every stage of production. Tariffs often rise with the level of processing in industrial countries. To the developing nation, it must seem it is better off not industrializing (116).
In realising that foreign investments are the key source of the nation’s economic rise, the Chinese government has given special preferences to foreign investors (Financial Express, 2006). This is mostly done through reduction of most favoured nation (MFN) tariff rate. In India, on the other hand, fair competition exists between domestic and foreign investors. Although the Indian government states that it aims to reduce its MFN tariff rate, which currently doubles the rate in China, to other ASEAN country levels, it is in reality a big challenge because a large portion of the nation’s tax revenue comes from customs tariffs (Henley, 2004).
level. The sand is Both developed and developing countries benefit from tariff reduction. The consumer will have more choices with more products and a wider price range.... ... middle of paper ... ... Retrieved from http://www.oecd-ilibrary.org/docserver/download/0109121e.pdf?expires=1394821453&id=id&accname=guest&checksum=148EDDDFD930AFCF166F34498B8601B6.
...tervene despite evidence showing that most interventions are counter-productive is the ambiguity presented by various economists making arguments for or against trade. Ambiguous arguments and nationalist pride will continue to influence more government interventions in free trade.
Economic risks faced by companies that want to expand their business globally are exchange controls, local content laws, import restrictions, tax controls, price controls, and labor problems (Cateora, Gilly & Graham, 2011). These risks can be just as harmful, in some cases, as the political risks faced. As implied by its title, import restrictions are limitations placed on certain goods being shipped in from another country. “There are especially tight import restrictions on goods with a potential to be hazardous” (Dugger, 2016). Many restrictions are placed on imports in order to protect and promote the domestic market within the host country. Tax controls are put into place primarily to generate revenue and operating funds. Unfortunately, many companies that attempt to expand their business overseas experience unreasonably high taxes. Elevated tax rates can also be seen as a form of protectionism in efforts to deter threatening foreign companies from entering their market, thus allowing domestic companies to
One of the most cited arguments for intervention is that of protecting jobs and industries from unfair foreign competition (Hill). While industries like aerospace are protected given their importance for national security, job protection appears as a result of unions and industries putting political pressure given the threat of more efficient foreign firms (Hill). Many countries achieve this by increasing the tariffs on imports of foreign products. What really happens when a certain industry is ...
Trade is more than the exchange of goods and services; it sows the seeds for growth, development and provides the knowledge and experience that makes development possible (Cho, 1995). Trade is considered one of the main driving forces behind economic growth and poverty reduction, especially in Africa (Fosu and Mold, 2008). Adam Smith’s 1776 theory of absolute advantage states that a trading nation can gain by specialising in the production of the commodity of its absolute advantage and exchanging part of this output with other trading partners for the commodities of its absolute disadvantage (Llorah, 2008). This process enables countries to extend beyond their borders, allowing greater specialisation in production, enhanced effectiveness in use of thin resources, the growth of national income, the capacity to accumulate independent wealth and enhances the growth of the economy (Cho, 1995). According to DFID’s report, Trade Matters, other positive derivatives include raised employment, increased household income and the chance for people to earn their way out of poverty, independent of aid (DFID, 2005). The role of trade, while strongly advocated, is still highly debated (Collins and Graham, 2004; Madeley, 2000) and many recent studies question the positive role of economic growth on open trade (Bene, 2009). The extensive arguments surrounding this controversial discussion empirically highlight the difficulty in isolating the effect of trade liberalisation on economic growth, although it is clear that it does, and will continue to have, an important role in poverty alleviation.
According to the EU policies a product is viewed as being dumped if its export price to the EU is lower than a comparable price for the like product in the ordinary course of trade or in the home country of the exporter (Andersen, 2009). The definition includes the concepts that take into consideration a comparable price, the like product, the ordinary course of trade, and the country of exports (Barcelo, 1972). These conditions are similar to those that are stipulated by the WTO law. However, under WTO law the definition of dumping includes the condition of ‘destined for consumption’. This condition is not inherent to the EU dumping definition (Andersen, 2009). Generally, dumping implies exporting goods to another destination at the rates that are considerably lower than those being charged in the home country. The WTO assumes that dumping should be prevented if it threatens to cause injury to an established industry in a market or if it is able to delay the establishment of a viable domestic industry (Paul, 2008).
Angola is one of those countries that is full of such examples. It is also full of contradictions and inefficiencies that dictate that more than often these interventions are only temporary on not fully abided by.
Reflected in its policies and attitudes toward business are a government's idea of how best to promote the national interest, considering its own resources and political philosophy. A government controls and restricts a company's activities by encouraging and offering support or by discouraging and banning or restricting its activities depending on the government. Here are steps in international law. International law recognizes the right of nations to grant or withhold permission to do business within its political boundaries and control its citizens when it comes to conducting business. Thus, political environment of countries is a critical concern for the international marketer and he should examine the salient political features of global markets they plan to enter.