International Business And Accounting - Essay Example

? International business and accounting Contents Contents 2 Executive summary 3 Introduction 3 Problem Identification and Analysis 4 ment of Major Problems 9 Generation and Evaluation of Alternative Solutions 10 Recommendations 12 Conclusion 13 References 13 Appendix 14 Executive summary The global trade might have great potential to open new avenues of commerce and opportunities but there are shortcomings to the increased global trade that is visible in the growing liberalization of markets and globalization of economies. The attitude adopted by developed countries towards the developing or emerging economies is one critical barrier that imposes several restrictions on the benefits of global trade. The global trade system today is working only for the rich and exploiting the weaker sections of the society through increased consumerism and inadequate considerations to the marginalized sections. The larger multinational companies are thriving, reaping surplus benefits from the globalization of economies while the smaller firms are struggling to survive in the face of growing competition. These smaller firms do not have adequate resources to challenge the multinational companies and they tend to fumble in the process of survival. The North American Free Trade Agreement implemented in the year 1994 has been the focus of controversies related to global trading practices and the implied benefits of free trade agreements. The paper evaluates the positives and negative implications of such agreement to highlight the potential drawbacks and remedial measures that can be adopted by governments to ensure free and fair trading environment for all. Introduction Globalization of economies has spelt expanded business opportunities and scope to tap new market potentials. The growing integration of international markets has helped promote international trade and investment more freely. The past three decades have witnessed a dramatic increase in global production and trade volumes. In the year 2006 global exports value had reached US$ 11.98 trillion as compared to US$ 5.17 trillion in the year 1995 (UNCTAD, 2009). The implications of increasing global trade and investment patterns is felt in wealth creation and accumulation across countries that has resulted in better standards of living and reduction in poverty levels. The consumers across the globe have expanded choices in terms of services and commodities available in the market. The international trade volumes have spurred economic growth and development in third world countries and this is reflected in terms of expanded business opportunities, increased employment and improved wages. The diversity in market structures, financial environment, cultural practices, consumer behavior, and industry trends present risks and challenges to international companies. Trading in goods and services in such conditions assume new complexities that can restrict the potential of growth and development (Evenett & Hoekman, 2006). Based on these observations, the paper provides an in-depth assessment of the implications and impacts of free-trade agreements from the differing perspectives of business, consumer, worker and society. The subsequent sections highlight the pros and cons of free trade agreements and how it impacts each section of the society and economic framework. Problem Identification and Analysis International trade and economic cooperation has been driven by government initiatives and international communities that frame their decisions on the inputs from private sector. Regional trade communities and bilateral trade agreements facilitate trade and investment through improved transparency, removal of non-tariff barriers, market liberalization policies, establishment of trading norms and standards, and improved bilateral understanding to support trading in services (ASEAN-China report, 2001). While globalization of economies and market liberalization practices have defined new opportunities for unrestricted trade and commerce between countries, regional trade cooperation helps in sustaining changes taking place in the globalize markets in areas of technology and cross border interactions (Devlin & Estevadeordal, 2002). Some of the important global trade co operations include the European Union (EU), North American Free Trade Agreement (NAFTA), Association of South East Nations (ASEAN), and Canada-US Free Trade Agreement (CUSTA). The trade agreement between two countries contributes to smoother transactions and improved understanding that result in extended cooperation and low trade barriers. “Recognizing the gains from liberalization, it is often argued that concluding a preferential trade agreement is politically easier than pursuing multilateral trade liberalization agreements” (Sanoussi, 2001). The statement reflects the significance of negotiation with few trading partners rather than entertain a large number of players in trading process. Such negotiation can promote reduction of trade barriers, outline specific standards and practices for investment and capital market considerations. Such cooperation play an important role in formulating new strategies and procedures for supporting and sustaining trade goals. Since the year 1994, The United States and Mexico have a sound economic relation through the North American Free Trade Agreement (NAFTA). Mexico was not in favor of opening its doors to the outside world for businesses. In other words Mexico’s economic policy restricted any trade between two states. In the late 1980’s Mexico decided to liberalize their trade policy. The decision was taken by the Mexican government. They did not take permission nor took opinion from any other country. There were some changes in terms of the trade related work. Some of the trade related jobs increased while some decreased as well (Villarreal, 2012). The reason cannot be solely on account of NAFTA as there are several other factors which contribute to this like the economic condition of a country, exchange rate variations etc. Since 1994, NAFTA has been into effect and there has been a rise in the trade and economic growth. The reason for the changes in the trade which were related to NAFTA was because of the changes in the U.S. trade and the type of investment with Mexico. U.S. and Canada were already in agreement for a free trade before the implementation of NAFTA. Mexico had a strict import restriction policy. Before NAFTA, Mexico was trying to develop some domestic industries and for that they implemented trade protection. For example, the Mexican automotive industry which was established in between the year 1962 and 1989 had been regulated by a series of five orders which had the law issued by the Mexican government (Villarreal, 2012). According to this law, the import tariffs were as high as 25 percent on the automotive goods and a policy of high tariff and restriction on the foreign auto manufacturing in Mexico were in existence. After NAFTA came into effect, Mexico became liberalized in terms of the trade policy. In spite of the implementation of NAFTA, the U.S. economy was very little affected or the impact has been relatively small. The reason being after NAFTA came into being there was a two way trade relation with Mexico and it amounted to less than 3 percent of U.S. gross domestic product. Any change in the trading pattern with Mexico, U.S. economy would have been still been unaffected (USDA, 2011). There were some sectors where the tariffs were removed to a significant proportion and other trade restrictions were also lifted. This was mostly apparent in the textile, automotive and apparel industries. Since the NAFTA came into being, the U.S. trade with Mexico improved more than with any other country. The automotive, textile and other apparel industries saw some changes which were worth noticing in the fields of employment in these industries. The changes were brought about by the trading style and pattern in these industries, which helped the U.S. to see a rise in the employment sector. In order to reap extended benefits from free trade, it was mandatory that the trading goods adhered to the standard norms and provision laid out in the agreement. The rule stated that the apparel products that were traded among the partners required to be made only out of yarn and the fabric which were made within the free trade zone (Villarreal, 2012). According to the rule of the origin provision, U.S. textile producers were allowed to continue supplying to U.S. apparel companies that had shifted to Mexico. This rule of origin provision was necessary else the apparel companies had a chance to import the low cost fabrics from some countries and export the final product to the United States. The main feature of the NAFTA policy which was related to the textiles and apparel was that it lifted any tariff and quota on the Mexican goods, especially those which were exported from Mexico. The tax was also lifted on the imported U.S. textile and apparel products. Before 1980, the Mexican economy couldn’t improve because of the restrictions on the trade policy. After NAFTA became a part of the Mexican economy, trade was liberalized and consequently there was an increase in the trade. Needless to mention that after NAFTA was implemented Mexico benefited both economically and socially as the free trade brought exchange of advanced technology, education and last but not the least improved job culture. The benefits were though not distributed evenly in Mexico for the social, political or economic reforms. After 1980, though the net economy of Mexico was growing, NAFTA couldn’t contribute much to create job opportunities or work towards reducing inequalities of income in Mexico or between Mexico and the United States or Canada (Villarreal, 2012). A study done by the 2005 World Bank concluded that there were nonetheless some positive economic effects on the economy of Mexico as a result of NAFTA. It aided Mexico rise closer to the level to the level of development in the United States and Canada. This was further proved by the facts that NAFTA helped Mexico to be able to adopt the U.S. technologies and the advanced innovations which helped the Mexican companies flourish and thus had a positive impact on the quality and the number of jobs available in Mexico (Villarreal, 2012). World Bank also concluded that owing to NAFTA, there were fewer fluctuations in the gross domestic growth rate, the macroeconomic volatility, decreased in Mexico. The business trends, patterns and cycles in all the three countries –U.S., Canada and Mexico, had some level of coincidence of events. According to some economists, NAFTA was more or less responsible for the growth of the Mexican’s economic condition which happened after the 1995 currency crisis. Mexico took care of the strong economic adjustment policy by abiding by the rules and regulations by the liberalization trade with the United States and Canada. There are some studies which go in favor of NAFTA as it has supported the Mexican government to deal with the market –oriented economic changes (SICE, 2012). This helped the investor sector to gain confidence and thus saw more investment in Mexico. The World Bank study also depicted that 40 percent of the total FDI was possible only on account of NAFTA (USDA, 2011). There are some reasons or arguments which are in favor of NAFTA. The policy makers could easily predict that the agreement would improve the economic conditions in Mexico and limit the gap in income between Mexico and United States. However there is a contradiction in the study which states that NAFTA is not enough to bring down the differences in the economic conditions between United States and Mexico. Mexico had to invest and look upon more in the fields of education, infrastructure, educational institutions etc. During the post NAFTA period, many Mexican institutions did not show much improvement as compared to other Latin American countries. The World Bank study revealed that NAFTA surely had some positive impact on the economic and the social conditions of Mexico but this did not help in narrowing the wage or the gap in the salary structure between Mexico and United States. NAFTA had some positive implications on the wages and employment in some states of Mexico, but there was a huge difference in the wages within the country which increased as a result of trade liberalization (Public Citizen, 2012). Statement of Major Problems The regional trade cooperation and agreement has enabled businesses to prosper in a streamlined channel where the chances of exploiting economic variables for commercial gains remain limited. Regulated trade cooperation has its own advantages in terms of trade regulations and improved integration that helps in technology transfers, innovative enterprises and skills development initiatives (Setboonsarng, 2005). However, one of the primary limitations of this form of trade practices is felt in the growing capitalist structure of society that has eroded the interests of small business enterprises and local grocery stores. The invasion of multinational enterprises in areas of retailing and consumer products has made it difficult for small business operators to survive and grow in the face of limited capital investment. Developed countries benefit from growth prospects in terms of expanded job opportunities, growing business potential and increasing wage structure. The international trade faces several restrictions owing to the standards and policies adopted by the developed countries to maintain their profit margins and create more wealth for the already wealthy people. These restrictions come in the form of market access policies that restricts domestic exporters to grow and expand into global markets Tariffs imposed on imported goods and merchandise is yet another barrier to global trade that causes the prices of the products to escalate in the market. Among internal constraints faced by the developing countries is the limited market potential in the domestic region. Due to smaller population size or the higher poverty levels the manufacturers in these countries do not have sufficient consumers in the domestic market. This has led to higher prices of products and lack of competitiveness in the market. Lack of adequate skilled manpower, poor infrastructure, and limited resources has imposed severe limitations to the country’s ability to produce quality products (Global issues, 2006). Generation and Evaluation of Alternative Solutions The whole concept of international trade agreements and trading bodies is based on the perception of economic benefits and integration of resources for improved productivity and mutual benefits. Developing countries seek such agreements to secure access to developed markets, improve economic potentials and expand industrial relations for achieving growth and stability in markets (Devlin & Estevadeordal, 2002). The overall objective is to achieve national economic growth and increased foreign investment. The strongholds of this trading practice lies in its scope and potential to enhance competitive advantage for industries, exchange resource capabilities and seek technology advances. However, as discussed in previous section, the benefits of such strategies are more obvious for developing countries than their developed counterparts. Global trade is beneficial for kinds of economies, whether developed or developing. Producers’ benefit from selling their goods in international markets generating higher revenues and consumers benefit from expanded choices of products available in the market. The international trade can help reduce poverty levels and erase income inequalities in developing economies promising improved standards of living. The international trade is regulated through a set of rules that the governments of the countries have created over the years. The poorer countries have restricted access to markets in developed countries due to the imposition of various trade barriers and agricultural subsidies (Global issues, 2011). Markets have become more volatile as a result of global impacts and this has created the need for changing strategies in business operations and tactful government intervention to insulate the country’s economy from harmful economic effects. Monetary and fiscal policies are highly instrumental in regulating the country’s economy and creating market stability. The key strategic focus of governments while formulating trade agreements should be on eliminating trade disparities and establishment of norms that define quality of products and services delivered to the end consumers. The developed economy must focus on ensuring a fair trade practice that helps in reducing trade barriers and any form of economic exploitation. On the other hand, the developing country must focus on leveraging its key strengths and capabilities for better bargain in trading terms and conditions (Devlin & Estevadeordal, 2002). Recommendations Based on the observations and discussion above, it is recommended that the governments of each country participating in trade cooperation must focus on achieving equilibrium in terms of investment patterns and trading benefits. Developing economies present lucrative market options owing to cheap labor and increased scope for businesses. The emphasis should be on creating employment opportunities and improving pay scale to sustain healthy standards of living rather than exploit existing resources for personal gain and profits. Corporate responsibility and sustainability play an important role in leveraging social and political ties for longer and stronger trade relations (Laursen, 2003). Facilitation of trade and commerce are the key aspects defining the effectiveness of regional economic cooperation and trade agreements. Hence governments should focus on identifying key trade barriers that exist in the region before formulating suitable norms and standards for effective trade relations. Small and medium enterprises must be boosted to avail the benefits of this regional cooperation for a strong societal growth and development. While goods and commodities play a vital role in promoting trade volumes, service sector can play an important role in supporting a long and fruitful association between the countries. Growing inter-dependence in areas of tourism, art and culture can help in exchanging values and eliminate barriers that exist in form of social, religious and cultural diversity between countries (New World Encyclopedia, 2005). E-commerce is yet another area that can help in dissolving physical barriers and promote small business enterprises in reaching out to new markets. Technology and communication can play a pivotal role in ensuring collaborative ventures for long term relationships (OECD, 2007). Conclusion The paper has outlined the measures that can be adopted by governments for ensuring a free and fair trading environment between countries. Business ventures and profit goals are important but with the help of governing bodies, economies can ensure ethical corporate practices that support social and cultural causes too. References 1. ASEAN-China report 2001, Forging closer ASEAN-China economic relations in the 21st century, Report by ASEAN China Expert group on Economic Cooperation. 2. Devlin, R. & Estevadeordal, A. 2002, Trade and cooperation: a regional public good approach, Pacific Economic Cooperation Council Trade Forum report. 3. Evenett, S.J. & Hoekman, B.M. 2006, Economic development and multilateral trade cooperation, Palgrave Macmillan. 4. Global issues 2006, Criticisms of current forms of free trade, available from http://www.globalissues.org/article/40/criticisms-of-current-forms-of-free-trade 5. Global issues 2011, free trade and globalization, available from http://www.globalissues.org/issue/38/free-trade-and-globalization 6. Laursen, F. 2003, Comparative regional integration – theoretical perspectives, Ashgate Publishing Company. 7. New World Encyclopedia 2005, Globalization, available from http://www.newworldencyclopedia.org/entry/Globalization 8. OECD 2007, Environmental and regional trade agreements, Organization for Economic Cooperation and Development. 9. Public Citizen 2012, North American Free Trade Agreement (NAFTA), available from http://www.citizen.org/Page.aspx?pid=531 10. Sanoussi, B. 2001, Trade blocs, in R.Jones ed., Routledge Encyclopedia of International Political Economy, Routledge. 11. Setboonsarng, S. 2005, Regional economic cooperation in trade and investment for the rehabilitation of tsunami affected countries: a private sector approach, Asia Pacific Trade and Investment Review, Vol 1, No.1, pp 133-148. 12. SICE 2012, Foreign trade information system, available from http://www.sice.oas.org/Trade/NAFTA/NAFTATCE.ASP 13. UNCTAD 2009, Trade and Development Report, available from http://www.unctad.org/en/docs/tdr2009overview_en.pdf 14. USDA 2011, North American Free Trade Agreement (NAFTA), available from http://www.fas.usda.gov/itp/Policy/NAFTA/nafta.asp 15. Villarreal, M.A. 2012, US-Mexico economic relations: trends, issues, and implications, Congressional Research Service report. Appendix Tasks Time zone - Reading Pennsylvania - GMT -5.00 hr Time zone - Bangalore India - GMT +5.00 hr To schedule a meeting over telephone person between these two places, the person in Reading Pennsylvania must call around 9 pm when the corresponding time in Bangalore will be 9 am. Exchange rate fluctuation over 2 week period Read More