Fair system of international trade - Essay Example

? Fair system of international trade The increase in the volume of sales and the growth of business has led to the need to expand operations beyond the borders of the domestic market and reach consumers in other countries. This has witnessed the rise of multinationals and organisations with global operations scales. However, the economic, legal and socio-political disparity in countries has created significant problems and challenges to such business thus making it difficult to continue with operations1. Different countries have different laws governing the operation of foreign businesses and this has been demonstrated to create inequality and unfairness in the market. Some laws favour domestic firms and make it difficult for the international companies and organisations to compete favourably with domestic firms. The existence of laws and political systems that favour one group as opposed to the other affect natural competitive advantage that organisations should gain in the market and bestow upon domestic markets undue advantage over the others. Apart from legal systems that affect operations of multinationals, other forms of inequalities exist that make it difficult to gain a completely free system devoid of legal, political and socio-economic interference. Although having a completely fair system of trade seems far-fetched and utopian given the existing inequalities between countries, trade strategies employed by developed countries and huge global corporation can be fashioned in such a way as to allow a fairer system of trade. As such, it is not that a fairer system of trade cannot exist, but that the people, businesses and countries benefiting from the current system of trade do not want such a system to exist. As long as the economic and development interests of certain powerful countries come above the interest of other less powerful countries, such unfair trade will persist and the possibility of change for the better will seem not possible. Different countries in different parts of the world have different political and legal stages of development and maturity, which may differ with those of other countries. This affects the ability of other multinationals especially from developing countries to competitively conduct their business without facing the challenges of the legal and socio-economic systems. A number of factors make it impossible to gain a fair business environment in the global sphere and these majorly depend on the economic development and political maturity of the country2. Most developed countries have enacted laws that although are aimed to protect the interest of the citizens, affect the smooth development and operations of international trade around the world. International trade can only be complete if a country allows for free movement of goods and services as exports and imports. However, this is not the case in a number of countries including the United States and Canada who have enacted a number of legislations that make it impossible to achieve a fair trade system3. From 1930a, the United States has enacted a number of laws, which are aimed at eliminating or reducing the overall volume of international trade in the country by restricting the amount of goods that can be imported into the country. The enactment of the multilateral trade agreement, the tariff act of 1984the omnibus trade act of 2988 and the antidumping act of 1921 made it impossible for multinationals to increase their operations by increasing imports into the country. The American legislations that have been used to protect the country and domestic firms from competition by multinationals has been widely viewed as being protectionist in nature and this increases unfair business practices in the global market4. Apart from the legal differences that do exist between countries, other factors such as the social aspects of a country affects the performance of foreign companies and give the domestic firms undue advantage. Citizens naturally feel at ease with products manufactured by their home companies and this gave birth to the adage ‘made in America for Americans’. With such kind of socio-economic environment, it is highly difficult for the foreign business to gain competitive advantage over other firms in the same market. The population distribution and the impacts of population on consumer habits also increase the competitive advantage of the local firms. It is thus very challenging for local firms to increase their market presence in foreign markets with strong cultural ties to home products, which give the domestic multinationals or small companies undue advantage5. The international market has been dominated by large multinationals from rich countries for years and this has given them undue advantage over other emerging multinationals from the developing world. The current global trade system seems to be much inclined towards favouring the dominance of developed countries. Despite the efforts by the world trade organization to increase fair competition for all players irrespective of the country of origin, the system has failed to control the dominance of the developed countries. As a result, most developing countries make free trade laws and allow free border movements of labour and goods6. However, the developed countries have been allowed to continue legislating laws, which restrict free movement of goods into the countries. The international system also holds to the fact that movement of goods from the developed countries to the developing world does not violate any international trade agreement. This is based on the assumption that goods from much developed countries are more technologically advanced than those from less developed world. Most powerful countries including the United Kingdom, United States, France, and Germany among other are key financers of the United Nations under which the world trade organization operates. As a result, it is impossible for the body to impartially and fairly implement fair trade practices on these countries in order to benefit other developing economies in the world7. In their quest to increase fairness and equality in the international trade arena, developing economies have used a number of forums organized by the world trade organization to agitate for changes in the trading systems. A number of approaches must be adopted to improve the fairness and equality principle in international trade and make it possible for both developed and developing economies to compete favourably. Most developed countries have imposed high tariffs on goods getting into their countries that restrict the volume imported and the overall international trade volume of sales8. This works against the developing countries and smaller multinationals who may find it impossible to operate with the high tariffs. As a result, it is common to find small firms and companies from developing countries wrapping their businesses in developed countries due to the high tariffs and costs of operations9. One of the approaches that must be adopted by these developed economies with the advice of the world trade organization in the reduction of the tariffs charged on goods from the developing countries. Tariffs are imposed by countries for three reasons, which include a method of collecting government revenue, a way of protecting domestic small enterprises and improve innovation and as punitive measures adopted by countries to reduce the influence of foreign companies. According to the policy adopted by the world trade organization, all forms of restrictions aimed at protecting local firms and restraining the impacts of foreign organisations are illegal by principle according to the world trade organization. The General Agreement on Tariffs and Trade (GATT), all signatories to the arbitrary value geared towards tariff purposes are meant to devalue the purpose of tariff imposition. All members of the GATT have signed the tariff concession agreement and this makes it mandatory for these countries to remove tariff barriers on foreign imports10. The imposition of tariffs have significant impacts on the domestic prices of the goods imported which makes them either unaffordable or out of favour of the majority consumers in that economy. Through this approach, such goods from less developed countries become more expensive as compared to their substitute manufactured in the developed country. Small countries, which comprise developing economies, lack the ability to influence the domestic prices or goods and services in the international market thus placing such countries at a disadvantaged position11. Lowering the tariff rates and increasing import and exports from and to the developed countries will increase the overall international trade within these economies and thus increase fairness and equality in the sector. Through the reduction of tariffs, the loophole available for major economies in the global market to manipulate price which results into competitive disadvantage for the businesses from less developed countries are eliminated. It also enables producers in developing countries to enjoy the benefits of large-scale production and this brings more economic benefits to the entire country12. Imposition of tariffs alone cannot make the developed countries and economies abandon unfair business practices that restrict the performance of companies from emerging economies. The GATT and WTO must oversee the process of initiating negotiations between the developed countries to ensure the achievement of more efficient economies13. Any negotiations towards efficiency must work towards achieving the Pareto optimality that seeks to have an international business environment in which no state can be made better off without another state being made worse off. This is the notion that has existed for long among the developed economies who have worked towards achieving sanity for their economies while working towards killing other emerging multinationals from developing countries14. While negotiating for the Pareto optimality, the multinationals from developed economies will be forced to compensate the emerging multinationals in case their approaches threaten the existence and entry of these multinationals into developed economies. Pareto optimality highlights that fact that so long as no country gains by infringing on the rights of the other disadvantaged organization, no country will be justified to resist multilateral trade agreements15. Apart from trade barriers in form of tariffs and restriction, there exist other forms of barriers to multinationals from emerging economies, which affect their businesses in the developed countries. One of the pressing issues in international trade inequality and lack of fairness is the restriction placed on products from developing economies. This fall under the nontariff barriers (NTBs) which developed countries such as the United States and the United Kingdom have adopted to restrict movement of goods from developing countries into their economies. The use of NTBs by developing countries have been viewed as efforts to restrict the entry of substitute products into their economies that may increase competition between their products and the imports from developing economies. Most little developed countries (LDCs) are considered as agricultural economies that depend largely on agricultural imports for their multinationals. During the 1970s, a number of import NTBS were implemented by developed countries against these multinationals and this reduced the volume of business conducted. Other special interest areas to the LDCs are the textile, clothing and leather industry and this explains the existence of a number of multinationals in these areas. However, the NBTs that have been enforced this far have attempted to eliminate the importation of such products into developed economies which has affected the entry of MNCs from emerging economies into the developed markets. Multinationals from japan have been the most hit by these restrictive policies as the country have multinationals handling labour intensive. This resulted into widespread accusation spreading into other countries including Taiwan, Hong Kong and Korea. The removal of the nontariff barriers is one of the approaches that can be used to achieve equality and remove disparities that exist within the international market. As the developed countries depend on the developing countries for market, they must open up their markets for competition and increase the flow of imports from other countries without restriction. As the globalization process advances, the desire to continue protecting domestic organisations from international competition cushions them from the competitive benefits they would otherwise join. The global market is currently filled with new advances in technological discoveries, which benefits multinationals operating in a free market. The firms in developed economies can only improve their products and the quality of their services through engagement in unprotected business environment. One of the major worries since the 70s among the developed countries on the imports from the less developed countries is quality of the goods, a factor that has been overtaken by events. Currently, international business bodies with the support of the WTO has developed universal standard for goods sold in the global market. This makes the imports from the United States, japan, Taiwan or any developing economy in Africa to have the same standard and thus fit for international market. The world trade organization has adopted a number of approaches aimed at ensuring the achievement of fairness and equality in international trade and the entry of multinationals from emerging economies into developed countries. However, most of the approaches have been subjected to criticism due to their inability to adequately address the fundamental inequality and lack of fairness that exists in the global market. The world trade organization has been accused by developing economies of favouritism and inability to act on the developed economies who are adopting policies to restrain entry into their markets. One of the policies adopted by the body is the most favoured nation (MFN) doctrine that seeks to provide a levelled playground for all multinationals and punish companies seen to favour others. With this policy, no country is allowed to discriminate on its trading partners and they are therefore required to ensure that the treatment accorded to any organization is spread to all others in the contract. This treaty was meant to reduce the favouritism that existed among developed countries in which they advanced a number of goodies and business incentives to their colleagues from the developed economies. This left the countries from less developed economies to struggle to make any significant impact on this market due to unfair competitive advantages. However, the world trade organization has failed to develop enforcement mechanisms of ensuring that other companies are protected from this favouritism and it is still common practice in the developed countries16. The national provision by the world trade organization under the GATT agreement prevents developed countries from discriminating against other foreign goods in comparison to their own goods. All goods allowed entry into a country must be treated with the fairness it deserves under treatment paradigm. This approach however allows for developed economies to reduce tariffs for nonlocal products or on goods deemed unfit for the economy. This clause has been manipulated by developed economies and has been extensively used to block the entry of products from developing countries into the developed economies. The world trade organization has however failed to respond to the concerns from the developing economies to act on this ensure fairness in restricting movement of goods into a specific economy in the international market17. The world trade organization conducts trade meetings and conventions where important international trade agreements and concessions are done. However, this seems not to favour the developing economies, as they are unable to prepare for these regular meetings and make significant contributions. The developed economies have permanent representatives who are always ready for the decisions that affect the multinationals in their countries. This results into the implementation of decisions that favour the developed countries as opposed to the developing economies. As an organization tasked with the implementation of fair trade and equality, the world trade organization has failed to develop a program that favours the developing nations18. This has created a situation where the decisions made favour the developed countries and cushion their economies against products from the developing economies19. The reduction of barriers and tariffs as advocated for by the world trade organization has been uniform, irrespective of the economic development of a given country. This has created a situation where multinationals and firms from developed economies infiltrate the developed markets due to their financial strengths. The firms from the developing economies are however unable to adequately mount a similar campaign in the developed economies due to the nontariff barriers imposed by these countries20. The result of this is a situation where the domestic firms in the developing countries as killed due to high competition from developed firms thus resulting into unfairness and misbalance in the international trade practice. The world trade organization must implement policies that are selective in application and influenced by the situation of the different economies in the world. The abolition of tariffs and barriers should not be implemented in uniformity must should instead give consideration to the different economies in the world and how such approaches will affect the performance of their young and emerging firms21. Developing economies and other LDCs rely on agricultural, textile and leather exports for their survival in the competitive international market. However, the world trade organization has adopted policies that prohibit the issuance of subsidies for agriculture and the rewarding of organisations that uses local materials for production. This policy seems to favour the developed economies as it forces the firms in the LDCs to acquire materials at the same cost as their colleagues in the developed countries22. This policy and the other that have been discussed prove the inability of the world trade organization to develop policies that cushion the multinationals from least developed countries from advanced competition. A number of policies by the body has been pro-developed countries and thus have favoured them more than the developing economies23. The tariffs and other barriers that have been eliminated by the WTO to help liberalise the market should be introduced selectively. This introduction will seek to protect the multinationals from the developing economies from competition by developed economies, which can push these organisations out of business. Developing countries should thus be allowed to impose monitored tariffs on products from the developed economies which may create unnecessary competition24. Bibliography Fatoumata Jawara & Aileen Kwa. Behind the Scenes at the WTO: The Real World of International Trade Negotiations, London: Zedbooks, 2003. Hoekman, Benard. & Michel Kostecki. The Political Economy of the World Trading System: The WTO and Beyond, Second edition, Oxford: Oxford University Press, 2001. Fung, Chelsea & Ray-Yung. Political Economy of Strategic Trade Policies," Review of International Economics, forthcoming, 2007. Decarlo, Jacqueline. Fair trade and how it works, The Rosen Publishing Group, 2011. Hudson, Ian., Hudson, Mark. & Fridell, Mara. Fair trade, sustainability and social change, Basingstoke: Palgrave Macmillan, 2013. 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