In this era of globalization, world economics affects every country and its economic scenario. The policies for international trade that are adopted by the country would decide on the success or failure of its industries. It is, therefore, very important that the country spends a considerable amount of time and attention in deciding on its International Trade and Policy conditions. Most of the factors that need to be considered are all interconnected. Now, therefore, we need to consider independent factors which would have a bearing impact on the trade policy. Free Trade and protection of trade, bilateral and multilateral trade agreements, Preferential Trade Agreements with countries, Regional Economic Integration, Trade wars, Tariff Controls, and Subsidies to exports and small or essential industries can be considered as they will have a major impact on the trade and international policy that a country might have. Suggestions on every one of these aspects are listed below.
Free Trade and Protection
While free trade opens up the country for limitless trading options, it also is accompanied by several issues that need to be answered. In the case of the US, though there are industries in which the country is dominating and can put with free trade competition, it is not the case with the other products. It is, therefore, important that the government prioritizes the industries and lays down what has to be protected and what could be opened up. Based on this list, free trade can be opened up for those industries that are in line with the international standard and competition. The rest of the industries should stay protected for some more time before liberalizing them.
Support to the industry could again happen in multiple ways. The protected industries should be subclassified based on the ones that need a subsidy to meet the international challenge. There could also be certain others that might require technological input to catch up with the international standard. These need to be protected. There could also be a certain class of industries that are specific and special to our country. These cannot be compromised. Free trade is good but should also ensure adequate protection for native industries. In the same way, it has to also protect the labor and their jobs. There can be offloading of jobs to some extent but should not bring about unemployment in the country. This could also result in large civil disorder.
Trade Liberalization is part of the free trade that most of the countries are signatories to under WTO. Trade liberalization is directly linked to the reduction in poverty in the country. This has been established by several other economists as well and this is also in line with the WTO policies on Free Trade. It is only justified for the country to liberalize the trade and reap the benefits of such liberalization further. The existing NAFTA has already cut on trade barriers and there is an extended trade liberalization that exists between the countries of the region. With this in view, in the year 2001, five Free Trade Agreements have been signed with different groups of countries or multilateral forums. US has signed up with CAFTA as they did the NAFTA. Bilateral Trade liberalization has been signed with Bahrain and Oman. The US should further its work in this direction so that there are more FTAs signed up. Trade liberalization should also be done using bilateral agreements that the US might sign up to. Many of the bilateral agreements like the ones with Bahrain or Oman; though the countries are small the economies are strong and resilient. This would ensure that there is consistent growth due to the free trade resorted to out of the liberalization exercise. Trade liberalization is an essential component of free trade that the US is advocating for many of the countries. The same is valid for it and it has to practice the same if the US wants to promote free trade in the world.
The era of liberalization has taken over most of the countries with the US advocating and being a model for its implementation. Trade liberalization in other forums also acts as the promoter of US interests. Typically, regional forums and other multilateral forums should be the ones where the US could insist on trade liberalization from the participating countries. This can be reciprocated only if the US also does the same for the group that it is negotiating with.
Tariff, non-tariff barriers, and Optimum Tariff
To bring in free trade over some time, it is only right for the country to introduce specific tariff controls. These controls can be choosy and can be on towards stopping dumping activities some of the countries might resort to. This has been seen as a major cause of concern for the countries that want to have free trade in the areas where they are strong. But for the countries that are fighting these dumping issues, to protect their internal industry, they need to introduce tariff controls. US needs to bring in specific tariff controls on items like steel where many of the steel mills in the US are still using older technologies when compared with what is existing in Brazil or Japan. The US needs to take specific measures also in the case of electronic and textile products whenever countries resort to dumping. While the US would like to specify a quota for such products, this has been rejected by WTO and the quota system that was in vogue has been ended both in the US and Europe.
Tariff controls are the final weapon that the country needs to wield when none of the restrictions and negotiations that they have had with the target country yielded any result. This is in most cases an emergency and final resort that the country will impose on the imports. The US would, however, retain this and employ it whenever it finds any of the countries violating or transgressing into the areas of interest. While this would be a negative action on the imports and in restricting imports into the country, there are also other positive actions that the country can contemplate like providing subsidies to the local industry. WTO has opposed introducing subsidies to such industries which are neither economical nor efficient producers of goods and services.
Voluntary Export Restrictions
Voluntary Export Restrictions if imposed on the country itself are known to harm the economy. Countries that have had VERs on their products have always faced a multitude of problems and a loss is sustained. However, it has always been found advantageous for the importing company to impose, a restrictive control on the exports to itself. This would end up providing control or a cap on the exports done to the country which is asking for a VER. The VER has to be implemented after convincing the government and the people of the exporting country of the validity and the legitimacy of the VER. This could turn out to be a tough job, though there are very little or no advantages for this topic.
Countervailing, Anti-Dumping Duties and Protection from Import Competition
The US needs to identify specific products that are subsidized in the third world and other developed countries which are not produced at a competitive price in the country. These products have to be levied a countervailing duty to ensure that the products do not damage the locally produced ones. Typically, agricultural products in specific countries go through a subsidy that might be selling at a higher price in the US. Therefore, these products might necessitate countervailing duties to bring them on par with the US products. Though agricultural products in the US are also subsidized, still they may not be able to match the price of the imported ones.
Anti-dumping duties may be levied on the products that the country feels are being dumped at less than normal prices by a specific enterprise or group of enterprises or from companies from a specific country. These are done to protect the local units from import competition and thereby ensure the survival of the local industry until it catches up and is ready for competition. This is particularly true about garments in the US and the federal government needs to take into consideration this requirement while addressing the issues of dumping. These can also be levied on a selective basis for a select period. This way, there may not be an unwanted anti-dumping low. The list maintained by the country shall be updated more frequently after taking care of the market conditions in the US. This would also ensure that there are no specific products that bring down the market price. Chinese garments did this to the market in the last few years. The effect has been felt by some American and European garment makers who found that the price of Chinese garments and textiles was grossly lower. This was also happening in Europe and both had to post an anti-dumping duty on the Chinese products.
It becomes imminent that the country protects its local industries from the import competition to ensure that they do not go about destroying the local industry by throwing it out of business. The protection can be implemented by closely watching the market. This will also bring about all the negative trade practices that any of the companies should resort to. At all these points of time, the country must take adequate measures to safeguard the local industry. This can be in the form of countervailing duties or anti-dumping laws. The net result should be one of increasing the price of the product in the local market so that the rest of the people in the industry could compete with the imported products from the specified country.
Trade Creation and Trade Diversion
While the trade creation increases the welfare of the state, trade diversion might not be of such effect. The effect will be the opposite and it is not recommended unless there are other pressing needs. Trade creation should be attempted at all free trade areas and new trading options with the optimal and efficient producer should be sourced. This has to be identified and new trade created. This trade creation is possible by increasing or signing up with more customs unions primarily formed out of friendly nations. NAFTA is one successful trade creation made using the free trade area of the North American countries. The US should create more such customs unions which would increase the trade between the member countries. This would also increase the industry’s interdependence and mark out specific common duties to products from the competing countries. This would also eliminate the rise of other such competition in the international market. Trade creations will, therefore, be the method by which the United States could bring about all the friendly countries to one or other participating free trade areas. Trade creation is the one that makes an FTA profitable.
At the same time, diversion should be kept to a minimum. Trade diversion could be required because of political, human rights, and other such noncommercial or trade-related activity. Or the introduction of the free trade area between two countries could also cause a trade diversion. A product that would have been profitable buying from one country might have been diverted because of the creation of a new free trade area. Bilateral or multilateral agreements could cause a third country which possibly was more efficient to lose its business. In this bargain, the US might also be losing because they might be forced to buy from a country or a company that might not be as good as the other. This causes a trade diversion which inherently is a loss for the country or results in a loss eventually. This should be avoided to the maximum extent possible. The country that is producing such products can be brought under other specific free trade areas which could also reduce the incidence of such trade diversions. But sometimes, it just cannot be avoided when the country that is sending the material is not in line with human rights or other political philosophy that the US might have.
Trading and Human Rights
Trading has been used as a weapon instead of hard weapons or hard power. Trade is soft power and can produce remarkable effects on the target country. It could work as a lever to enable the adaptation of human rights by the target country. Such trading restrictions imposed on many occasions are against the free trade that is advocated. UN sanctions or WTO trade restrictions are imposed on some of the countries seen to violate the human rights of their citizens. Under such conditions, it is found using trading restrictions as advantageous in place of war or other such strong actions. However, it has to be noted that such trade restrictions will cause a loss of business and should be avoided as much as possible. In addition to causing a loss to the restricting country, it also affects that target country much more. There are also cases where trade restrictions have little or no effect on the government of the target country that is already having scant respect for human rights. Human rights are protected and forced by the market and the market situation. This, however, will also ensure that the government and the sovereign work in support of free trade. If not the traders would find ways to bypass the sovereign which may not be for the good of it.
Accession to the WTO
WTO is one of the major multilateral agreements. This increases the trading pattern of the country and promotes free trade across the world. Therefore, it is important that the country signs up for WTO and also remains in it. At the same time, it has to necessarily protect many of its free trade area agreements, in addition to the bilateral and regional agreements that it has drawn up. Since the accession to WTO, is not an automatic process and involves negotiations between the country and WTO, it is better if the government ensures that all the conditions mentioned above are met. In addition to these, the government should also be able to negotiate with every member of the WTO on a bilateral basis to bring about a comprehensive multilateral agreement. This would ensure that the country can maintain its unique nature in the world forum.
The US has a specific role to play in the world forum since it has become the leader of world business. The unipolar world lead by the United States needs to be a place of co-existence and Eden Gardens for human life. With this in mind, the US should ensure that all the aspects of the world are taken into consideration without any specific privilege given to the north or the south. Goods and services should be treated on par and whether the origin is from the US or Europe or any other third world country, the methodology to control and monitor should be the same. A free trade area should be appropriately created for all the products. The movement of goods and services should not be differentiated and no special clauses should be had for differentiation.
Support to Infant Industries
The country should ensure that nascent and upcoming industries are given adequate protection to pick up and build its market. This can be said of internet banking and other such infant industries in the sphere of GM seeds, etc; all this would ensure that the upcoming industries are protected appropriately. They need time to build and be ready for competition. This is more relevant only in those cases where the industry is developed elsewhere and not in the country. Under this condition, the government needs to protect that industry segment from foreign competition. However, in other cases, it need not be the case for the country to protect it since it would be an infant all over the world and mutual helping might be required to make progress in the industry segment.
However, over a while, these protectionist measures should be withdrawn if they have to come up to satisfactory levels of performance. The government should be withdrawing the same once they match the importer’s quality levels. However, it is important to note that some of the companies that are protected might not produce goods and services of international quality and at a competitive price. This happens because they are already subsidized and no force in the market pushes the company to perform. Such things happen, with multiple products and supplies which are very difficult to monitor and ensure that the company produces the results needed by company. Therefore, this is a double-edged sword where the performance might not be easily gauged or controlled. The country should be very careful in offering the infant industry status and subsidy to any of them. If at all it is done, then it should happen with a clear time constraint enabling the concerned to come up to the market level within the defined period.
While the tariff controls are the ones that would restrict the import of goods and services, export subsidies would encourage promoting the exports against a target country. In many cases, such behavior would also bring in negative responses from the countries that are affected by subsidies. Subsidies in all forms and shapes are anti to the spirit of the GATT and the WTO. Since the US itself has been fighting for a subsidy stand and a free market system in all countries, it would not be advisable for the country to embark on a subsidy regime at any point in time. Moreover, such behavior would also encourage sloppiness in production and management essentially contributing to the inefficiency of the industry. Therefore, from the point of view of management and the point of view of the overall industrial growth and health, it is not an advisable action to bring in an export subsidy.
Under specific conditions, the country can still resort to export subsidies. If there are specific instances where the profitability in an industry might lead to social welfare that is not otherwise achievable, the country can resort to an export subsidy. Additionally, if the industry is specifically healthy and the internal consumption itself is profitable for the industry; then the country can make the industry sell the products outside the country by providing them with subsidies. This is specifically true in the case of medicines that might have a ready market in the US but is equally required elsewhere and the companies showing reluctance to expand their business. The government can provide a subsidy, one for obtaining the foreign exchange and to create a better balance of trade scenario, and two, to also ensure that the other country gets the product needed by them.
The US needs to also counter export subsidies offered by other countries to their industries. This is happening in the case of textile in China and India. Agricultural subsidies that are given in developing countries are more to support their internal production and society. But export subsidies would make their product competitive in the international market.
Bilateral and Multilateral Trade Agreements
The country needs to work out specific bilateral agreements with countries of importance. Importance may be worked out based on the balance of trade that currently exists. One of the key indicators will be the negative balance of trade. With all those countries where the country has a negative balance of trade, it is suggested that a bilateral agreement is finalized. This should bring about adequate market and strengths for our products to turn the balance of trade into a positive one, if possible, with our country. This would also make the country economically stronger. During such discussions, the strengths of the country in specific products should be adequately taped. For instance, the strength of the country in this case is in advanced computing devices and pharmaceutical industries. It is also true that the country’s strengths lie in aerospace equipment apart from nuclear equipment. This strength should be appropriately utilized to ensure that the country’s balance of trade with every country is positive. For instance, the balance of trade with China has been in the negative for the last five years and this is moving the debt size of the country to go up. To come out of this imbroglio, it is necessary that the country needs to analyze the strengths of either of the countries and their weaknesses. This would help in identifying the areas that the US could build a healthier relationship with China bringing in a change in the balance of trade. Similar working needs to be done with countries that could become important partners for the country and with those where there is a negative balance of trade.
Similarly, multilateral trade agreements need to be worked out which would help in putting in place a large plan for the growth of the economy and strengthening the country. This has to be specifically carried out in multilateral forums which have a strong presence of the country’s representatives. Multilateral agreements like GATT and other such UN-based forums could provide strong leverage that would bring about major changes in some of the countries. This would provide new markets hitherto untapped and can become promising. Such multilateral agreements need to be carefully drafted and the country should play an active role in drafting them.
Local Content Requirement
The local content requirements policy specifies the extent to which the government would allow Foreign Direct Investment in an industry that would generate local content. The local content can come up in multiple forms. One, the FDI might end up providing large-scale job opportunities to the local people. Two, the FDI might result in technology transfer that would influence the upstream industries as well as downstream industries. Countries could be interested in both aspects of the FDI. In our case, the interest of the US would be in ensuring both the possibility of employment and at the same time also resulting in technology transfer. Under specific conditions, the country can also be interested in exclusively one of them alone. Therefore, the country can go for a discriminatory LCR that would vary with the nature of the requirement the companies or the enterprises applying for a license might have.
Most of the foreign companies when they come into the country, they face the question of whether to export into the target country or go ahead with investing in the country. The product size, volume of the business expected and of course, the purchasing power of the target country is all evaluated to decide on this. If a large market exists for the product then it is only right that the foreign company invests and it results in both employment as well as a technology transfer. This has happened several times earlier with pharmaceutical companies and several other chemical companies. The government must insist on a specific contribution for both choices. In line with this, they should also insist on a percentage of gain for the country out of any foreign direct investment.
Preferential Trade Agreements
More in line with the bilateral agreements and the multilateral agreements that are drawn by the country, such Preferential Trade Agreements will also add to the performance. In those cases where the country and the businesses in the country see a large-scale growth of the market and a stable economy, the country must work out the best agreement with the host country. The country needs to ensure that the businesses that might get involved in the preferred country are safe and would work out to the advantage of all concerned. Trade with any country is expected to benefit both. However, while one gains financially, the other gains on the product.
This is in line with the Permanent Normal Trade Relations that the US is trying to establish with various countries, starting with China, Vietnam, and other East Asian countries. Though the country has to safeguard its interests, the global interest should also be reflected in the steps that are taken by the government. In line with this principle and to protect the interest of the investing companies in these countries, the following points need to be ensured:
- The target country should allow 100% ownership and allow corporate citizenship in their country.
- Provide uniform treatment for all companies whether they are local companies or from the US.
- Regulatory transparency should exist in these countries specifically for international and multinational companies.
These aims should be processed and carried forward in bilateral and multilateral discussions with any of the countries that the businesses in the country are interested. Such systems would bring about committed investment in the target country as much as ongoing business stability there. This will also benefit the businesses in their country once they start interacting with companies in the US. The bilateral and multilateral negotiations with various countries should ensure that there is enough regulatory transparency which would increase the confidence of the trading companies. This will also ensure that the foreign companies are treated on par with the local companies. This is specifically important in the case of financial investors and financial services companies.
Regional Economic Integration
Regional economic integration occurs when a member of a regional cooperation group offer each other preferred access to each other’s market. This is happening in the European Union, for instance, and in several other locations all over the world. More than 194 Regional Integration Agreements are recognized by GATT. The members of these groupings certainly enjoy privileges between themselves. This would increase the possibility of trading with the rest of the members. Therefore, it is wise to get involved with such trading arrangements to as great a degree as possible. It is in the interest of the economic growth of the nation to get it signed on a comfortable note with as many interest groups as are acceptable. Typically, the US has made itself available to the ASEAN, the South East Asian group primarily made up of developing economies of Singapore, Indonesia, Thailand, and Malaysia among many other countries of the region. One of the other important trading arrangements which need to be strengthened would be NAFTA (North American Free Trade Area). Some of the others where American presence could produce positive results for the US and the group would be its influence in several other Free Trade Areas or become a member or temporary member of some of the groups.
More than one-third of the world trade takes place through these agreements which are multilateral but made for a specific group of countries. This would also ensure that the countries can trade between themselves without any trade barriers at the same time retain some of their policies for other international partners. This generally pushes up the trade that is happening between the member countries. And that is possibly the reason why almost all the countries are members of one regional initiative or the other. Therefore, in the country’s interest and for trade promotion, the country should be signing up memberships in as many of these regional cooperation’s as possible at the same level as the member countries. Or in some cases, in a multilateral forum, the country can sign up with the group so that all the members adopt the same trading structure as us. This would improve and ease trading with such groups.
There are also counter thoughts to this, which states that there is not going to be any major increase in the trade if a regional cooperation initiative is entered into with a partner who is already a leading trading partner. Therefore, the government should ensure that such regional initiatives are not taken up with countries that are already large trading partners. This can show some improvement only if the countries are minor trading partners and have the promise of increasing their business relations with the US.
International trade negotiation is both strategic and diplomatic. During any negotiations, multiple forces come into play. It is the economic clout that a company wields in the world market in addition to the political and military power that it has. Many of these factors have a strong influence on the negotiation points raised by either of the parties to a negotiation. On many occasions, the local bureaucracy and the subcontractors could end up increasing the total cost of the project to such an extent that the company involved in the export order might not find exporting lucrative at all. Therefore, all the preliminary work must be done by the company at the time of negotiation, much before the signing of the contract itself. International negotiation, therefore, has to involve all the factors and actors who are a party to the import or the export. It is also important for the country and its government to ensure that their companies do not face such hardships. This can be ensured only if the government has a clear working arrangement with the country in which the work is being executed or from which the work is sub-contracted.
There are also cases where the security of the men and material in addition to the produced goods becomes imminent and might be the deciding factor. Most of the negotiators always insist on the fact that negotiations are supposed to provide a win-win situation to either of the players. This is particularly true in the case of international negotiations. If this is not ensured then the negotiation is a failure. Negotiations are based on the strategy and tactics of the people involved in the negotiation. However, there is no single way for the negotiator to proceed and ensure success though there are laid down rules for the government and for the negotiators to ensure that the work as is required is done.
There are wars on all counts in the international trading business. While the steel industry in the United States has been experiencing a major setback due to the onslaught of Brazilian and other similar products. When George Bush brought in the legislation to enable the steel mills to reopen, they could get a better deal by imposing constraints on the imports into the country. This was however contended in WTO and they ruled anti to the US legislation. This, of course, has been contested by the US in several forums and the next round of GATT talks will certainly feature this. There has been growing unrest among the developing countries for all the big proposals that come out of Europe and America, there might not be free trade happening there.
If the country wants to experience and enact protection to its industry then it might not be able to open up the market to foreign goods which are made cheaper than the local ones. This condition exists in every country for different sets of products and services. If the service industry is what India could provide to the US, it is the electronic goods which is the strong point for the Chinese. The other way round, the farm subsidies that most of the developing countries offer is a sop to their large population which is fighting the foreign ‘invasion’ into their agriculture produce. Agricultural products from the developed economies are much cheaper when compared with the ones that come out of the developing economies. Trade wars need to be fought and the best options need to be obtained out of them while at the same time steadily enabling free trade in the country.
The country needs to ensure that the industries and the people are protected from the negative effects of international trade. Opening up of the market could bring in detrimental effects to the industry that are weak, while for the stronger industries it would more to its value. The flow of trade from a stronger and better industry to one which is not is normal. Therefore, every one of these actions needs to be taken while deciding on the possible steps for the country’s international trade policy. In line with the observations made earlier, the country should choose between a free trade scenario that would help itself strengthen its existing industries and gain out of the lead that it already has. At the same time, it should also take substantial action in identifying the weaknesses and appropriately positioning the development in those industries that are not in line with international standards. This will ensure that the country progresses in these industries as well and they attain the efficiency levels that are elsewhere making them more competitive. This needs to be done in stages and after careful planning. These cannot be done overnight and hence appropriate protective measures are to be initiated to this extent.
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