Free The Practice of International Trade Essay Sample
According to the theory of international trade , a nation has a an advantage in producing goods or services if the cost of producing that good or service in the country is less than the cost of producing the goods or services in another country. It is essential for countries to engage in international trade because international trade is beneficial for countries in many ways. International trade helps countries to improve a countries volume of exports, widen its market for its goods or services and represents an opportunity for continued growth of countries exports (Dow, Jones, 2010).
The basis of international trade is the comparative advantage The unique resources , labor and capital of countries is what determines what goods and services a country can produce and determines the comparative advantage of that country in producing some goods or services. Countries exchange goods and services through international based on the principle of comparative advantage. Countries therefore their exchange goods and services with other countries that produce for the goods or services more efficiently than a country does. The concept of comparative advantage is what determines the wages of a country and the trading patterns of countries in the world (Investment Weekly, 2011).
Through international trade countries are able to benefit mutually in trade because international trade leads to the lowering of prices and the rise in the standards of living because the resulting patterns of world trade are better than when countries produce goods only for their own market. There are many bilateral and multilateral trade agreements formed by many countries across the world to regulate and advance international trade. An example is the World Trade Organization, which regulates international trade between member countries (Investment weekly, 2011).
There are many rules that govern the functioning of international trade and there are some instances where member countries violate the rules of international trade. For example in 2008 the country of Philippines filed a suit at the WTO trade dispute center alleging that Thailand had violated the world trade rules of international trade by imposing higher customs for cigarettes imported from Philippines in order to protect its local cigarette industry (Ben,2008).
The WTO dispute committee accepted the appeal by Thailand and ruled in favor of Philippines because it required Thailand to comply with its obligations under the world trade agreements of imposing uniform tariffs for member states. Thailand appealed the decision in February 24, 2008 because the ruling was against its wishes of protecting the local tobacco industry. Thailand appealed the decision of the WTO because it said it had the right to thwart the report of the adoption of the recommendations of the world trade organization of conformity with rules of world trade organization of 1994 in order to protect the local tobacco industry (Ben, 2008). .
Although Thailand appealed, the decision of the dispute resolution body of the WTO the World Trade Organization appeal body refused to rule in favor of Thailand and required the Thailand to live to its obligations as a member of the world trade organization to impose the set tariff limits for tobacco from Philippines (Ben, 2008).
The row between Thailand and Philippine about the tobacco imports highlights the issue of comparative advantage in international trade. The Philippines is a major and big producer of tobacco than Thailand and produces tobacco at a lower cost than Thailand. Philippines therefore have a comparative advantage producing tobacco than Thailand. However, as a way of responding to the threat of its local tobacco industry by cigarettes imports from Philippines, Thailand imposed higher customs as a counter competition measure in odder to protect its own tobacco industry. However, the two industries can still benefit from exports and imports of trade because the entry of Philippines cigarettes into Thailand market can triggers price reduction and variety for Thailand citizens (Ben, 2008).
According to the economics week (2011), the United States and Indian business council USIBC introduced many educational initiatives for boasting trade between India and the United States. The initiatives targeted at the Indian congress, Indian business professionals and the wider Indian public aims at enhancing the commercial ties between India and the United States. The initiative aims at opening many doors of American businesses in India. The two countries projected mutual benefit from stronger business ties. According to United States India business council the strengthening of the economy of the United States and the openness to business by India represented real opportunities for bigger volume of trade between the two countries.
The strengthening of business ties between India and the United States represents a real opportunity because the trade is a two-way trade that presents both opportunities for both countries. Investment in India by American businesses represents an opportunity for job creation in India while expanding the volume of trade between the two countries. International trade therefore provides the countries with the opportunity of growing their volumes of trade and creating stronger business ties with each other countries for mutual benefit. For example, the volume of trade between India and the United States hit 50 billion dollars and trend is predicted to increase as the business ties continued to grow. Stronger business ties between countries are therefore a prerequisite to international trade because they are useful in identification of the business opportunities that are present in country (Economics Weekly, 2011).
International trade is also subject to orders that prevent dumping of goods to other countries. For example, in late February 2011, the department of commerce in the United States introduced anti dumping duty to steel and iron boron added CTL plates made from china. . The department of commerce had compelling evidence that proved that the CTL plates made in china that had boron added to them had the similar physical characteristics and uses as ctl plate s that did not have boron incorporate in them. For several years, many Chinese companies added the element boron to the CTL plates as a way of evading the orders for anti dumping tariff for their CTL plates. As a result, all Chinese made CTL plates that had boron elements added to them were subjected to a duty called the antidumping duty (Mining & Minerals, 2011).
The Chinese companies had closely utilized the loopholes in international trade to evade taxes. Violation and the utilization of loopholes in international trade are common practices that are prevalent in international trade. The Chinese companies added a little component of boron 0.0008% to the CTL plates making their products to be classified as alloy steel instead of being classified as carbon steel. The Chinese companies therefore evaded paying the antidumping duty because of the stipulations of the harmonized tariff for alloy steels that required alloy steel exemptions from antidumping duty. These practices are common in international trade and there is need for countries to identify loopholes in their trade tariffs, and terms that companies utilize to make extra profits (Mining & Minerals, 2011).
The development of appropriate strategies and policies to support international trade is very critical in the success of international trade. For example, the state of Pennsylvania in the United States has introduced support programs for international trade. The state runs a program that helps businesses to increase their volume of exports, expand the market for their products and services to foreign markets and job creation. The state also runs programs that ensure that the program implemented do deliver good results. The success oaf Pennsylvania in boasting its exports and international trade has been cited by the Bookings Institute and the Rockefeller foundation as a model that ensures for the development of international trade. The country through the World Trade Organization agreements identifies and helps many companies in Pennsylvania to find many markets in other countries and helps other countries to identify markets within Pennsylvania. (Investment weekly, 2011)
The state officials of Pennsylvania meet twice a year with the organizations involved in aiding export like the United States Export Assistance Center (USEAC) and the Small Business Development Centre (SBDC) and the Chamber Of Commerce in order to strategize and coordinate the export business development. The state also runs a guide to exporting to give companies in outside of the United States a view of the business opportunities in Pennsylvania (Investment Weekly, 2011).
The state and the business community members meet together to listen to the needs of the business community international trade. These support programs have helped Pennsylvania to position itself as a leader in export promotion. The success on the Pennsylvania participation in international trade resulted in the exports worth 483 million dollars and foreign direct investment of about 161 million dollars despite the global financial crisis .In 2010, the program registered around 6400 jobs for the Pennsylvania state and registered around sixty three million dollars in taxes for the state of Pennsylvania (Investment weekly, 2011). The strong support for international trade by the government of Pennsylvania has paid off through growth of exports and foreign investment.
International trade also raises the issue of government engaging in unethical practices to protect their business from adverse effects of imports. There are cases where government runs trade adjustment programs that help the business to respond to the threat of competition from competition. Trade adjustments programs are necessarily for some countries because 80 percent of the companies that embrace these adjustments are not threatened by imports (Dow Jones, 2010).
Countries often find themselves in a dilemma about protecting their local businesses and the need to participate in international trade. Many governments also spend large amount of money in retaining employees but spend little on tariff adjustments. For example, the united state government spends millions in taxpayer in employee retention but little to help businesses adjust to competition. The need or fight competition from foreign businesses drives some business to engage in unethical ways of warding of competition if trade adjustments do not work (Wall Street, 2011).
The need for countries to benefit in the maximum from international trade also drives some countries to be hostile to some international treaties that regulate international trade. For example, The Generalized System of Preferences (GSP) agreement that reduced trade tariffs with third world countries faced opposition from Alabama senator because he believed that imports under this agreement especially from Bangladesh were enjoying some unworthy subsidies and wanted to remove the exemption of tariffs. The exports from Bangladesh to these countries had been increasing by a rate of 8.4 percent every year, and due to the inflation many manufactures of sleeping bags moved to Bangladesh to due to cheap labor, and reap more additional benefits from the GSP treaty (Wall Street, 2011).
The GSP treaty has been inexistence since the 1970s, has helped around 130 countries, to develop through trade with the United States to make a trade worth 23 billion dollars. However, the need to reap more from international trade promoted the Alabama senator to oppose the continued existence of the agreement because the GSP treaty has been very beneficial to the countries covered by the agreement because it has boasted the growth and development between the countries for a long time. There is always a tendency by many governments in international trade to oppose always trade agreements that seem to favor other countries more than they do (Wall Street, 2011).
One of the concerns of international trade relate to the impact it has for job losses in a country due to the signing of international trade agreements that open up a countries industries to competition. One way companies use in staying ahead in international trade is innovation and having zeal in adopting the use of technology. For example, many manufacturing industries in the Canadian technology triangle collapsed after Canada signed the free trade agreement with the United States (Wikens, 1992).
The effects of the global recession also meant that the many companies unable to respond to the economic revolution that the free trade agreement introduced faced a severe threat at the technology city in Canada. However, many traditional manufacturing industries survived because they embraced technology like their neighboring companies like MKS in their manufacturing and management methods. Many companies around the Canadian technology city closed down when the Canada signed the free trade agreement because they failed to embrace new technologies and innovation to function in an economy that is open to more competition (Wickens, 1992).
International trade offers countries with the chance of growing the volume of exports for their goods and services. International trade also offers the chance for countries to widen the market for its goods as well as opening its markets to goods from other countries leading to increase in competition. however the main challenge that international trade posses to business to business is the threat of increased competition and there is need for business to be innovative to respond to the challenge of operating in a more diverse and competitive business environment. There is also the need for countries to develop well-balanced international trade agreements enough to make sure that the countries in the agreement all reap benefits from international trade.