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International Business and Trade. WTO - Essay Example

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International Business and Trade. WTO

The widest application of the protectionist movement is in the incubation of new industries which by themselves cannot survive the harsh realities if the competitive market, the idea being the protection will be withdrawn once the company is established (Iowa State university, n.d.).
This concept is however extended in modern times and as captured by the events of the case study evolved to be proactive rather than reactive, where we see that the European Countries, namely France, Germany, Spain and Great Britain formed an alliance whose sole purpose was to gather enough capital to birth and sustain an aircraft manufacturing business with enough resources to effectively compete with the hitherto world monopoly of US based Boeing, the result of which was the birth of Airbus (Holmes, 2004). Given its current market strength, Boeing was enjoying vast economies of scale thus posing a significant barrier to entry to any interested private firm, and in the absence of competitive forces, concentrated more in research and development rather than marketing, and thus when they interfered with this monopoly power, the European governments eroded Boeing's potential returns from its investment, thus interfering with the market mechanism, and hence the first issue/conflict of the study.

The second issue has to do with the governments' support of private enterprise, especially as it relates to the struggle that exists between one side trying to eliminate while the other struggles to sustain a major world monopoly. As mentioned above the aircraft industry is extensively capital intensive, and whatever labour is involved is highly skilled and specialized, as evidenced by the investments in Research and Development by both sides of the conflict presented in the study. The world authority on trade, the World Trade Organization clearly prohibits the support of private enterprise by governments and other public entities.

Differences in terms of reference is also a major issue that has been highlighted in the case study. The Americans do not consider the massive government contracts that were awarded to Boeing as any form of government support, that is they argue that they did not interfere with the market but rather only participated in it, in a willing buyer willing seller fashion. This is of course in sharp contrast with the Europeans' initial direct capital investment into Airbus, let alone the continuing capital inflows into the company for continuing research and development in the form of very soft loans. The effect of governments' activities on both sides is basically the same, essentially to strengthen the respective aircraft manufacturers, therefore the argument lies in channels through which support was availed, rather than whether it was actually availed or not.

The relation of the above activities to protectionism is where we find on one side a government being the largest and most lucrative domestic customer to the company, thereby not only preventing any foreign competition in the domestic market, but also propelling it into world dominance (fulfilling the mercantilist view of what protectionism is all about) and preventing other foreign nations from producing the same product and ...Show more

Summary

The issues that are raised in the case study have much to do with the intervention of governments in the market mechanism, specifically the distortion of the ability of the same to allocate the highest return to that producer that most effectively captures customer's demand, gathers resources primarily on their own and produces products to meet this demand…
Author : harberblaise
International Business and Trade. WTO essay example
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