Free Foreign Trade Barriers Essay Sample
Foreign trade refers to the exchange of goods and services across international borders. The proclivity of a country to trade with another is impelled by the idea of comparative advantage. The producers and consumers in foreign trade setup reside in separate countries. Foreign trade barriers or restrictions are government imposed measures on foreign trade practices. Therefore, a trade barrier is any policy or any kind of regulation that restricts foreign trade.
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India's Trade Barriers and Their Implications
For any company that is interested in getting into international trade with India, it has to put into consideration the nature of the trading environment as dictated by the existing restrictions on such trade in India. This is informed by the fact that India has adopted a number of restrictions on foreign trade, all of which seek to regulate this trade.
One of the restrictions on foreign trade rests in the country's import policies. For example, U.S exporters still face tariff and nontariff barriers. These barriers hinder U.S exports to India. Nevertheless, United States' exports to the country continue to register notable growth as was witnessed in 2007. The government of India is still trying to restructure tariffs applied to nonagricultural goods. For example, the government in the budget it unveiled in early 2007, reduced the duty applied on industrial products to as low as 10% from a previous rate of 12%. This means that those who stand to benefit most are companies that export such goods to India. At the same time, the government reduced applied duties on many raw materials. The government reduced tariffs on chemicals and plastics to 7.5% from a high of 10%. Here, chemical manufacturers would stand to benefit. However, tariffs on industrial goods remain considerably high.
India's trade barriers can also be found in import licensing. For example, refurbished computer hardware for spare parts, can only enter into the country if an Indian Chartered Engineer ascertains and certifies that 80% of the equipment's residual life still remains. However, such local equipments are exempted from this requirement. In this policy, the local computer hardware industry stands to benefit.
The trade barrier underlying standard, testing, labelling and certification charges are too high cost on foreign companies. India, for example maintains stringent measures on imported boric acid. However, local refiners are able to sell and produce it with the only requirement of maintaining relevant records. Here too, the local industry is the one that benefits. The foreign companies lose.
Trade barrier also exist in as far as insurance is concerned. The concerned law allows foreign companies into the insurance but their equity is limited to 26%. The local insurance providers benefits for they command 74% equity. The foreign companies are the losers.
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The trade restrictions that India exercises are not there for public safety or health concern. They are mainly meant to protect many of its local industries from foreign competition. For example stringent measures have been imposed to regulate the import of boric acid. The government fear is that the acid might be diverted to use as an insecticide. However, it does not offer prove that noninsecticidal boric acid have been diverted for use as an insecticide.
From the analysis of some of the trade restrictions that India has adopted in regulating foreign trade practices, it is clear that before our company or any other company in this respect decides to enter into international trade with India, the various trade restrictions must be put into consideration. We have to consider the various restrictions against the kind of service or goods we deal with. The impacts of these policies have to be thoroughly considered so that at the end of any trade transaction, our company stands to benefit- which means reaping maximum profit at the least possible expense.