Agreements on Trade Barriers - Coursework Example

Trade Barriers Introduction Various trade barriers have been put into operation by policy makers for several reasons, these trade barriers are applied by an economy with the intention of benefiting the economy but these barriers even have negative effects associated with them. Several trade barriers placed to make trading in international markets a challenging task for those countries that trade internationally includes: tariffs, restrictions on imports, barriers placed with administrative support, rules applied against dumping, subsidies provided by the government directly and to encourage export, controlling the market system of exchange rate and licenses. Body The most common way of limiting the amount of imports into a country is to increase the taxes levied on imports. These taxes are increased by the government with the aim to ensure that the demand of local goods is promoted and the demand for international goods is decreased. When taxes on imports are increased, the cost of imported goods increases thus the domestic consumers find the locally produced goods cheaper which in turn aids local producers. One example of tariffs is the Tariff Act of 1930, this act was put into action to decrease imports and increase consumption of locally produced goods and services as the US was experiencing the Great Depression during that time (ILIAS, 2008, p.2). Tariffs are even levied on exports to limit the outflow of resources as well as locally produced goods, but these tariffs have mostly hurt local businesses due to which they are quite rarely applied. Another policy that has been put into position to reduce the imports of goods and services is restricting the amount of particular goods and services being imported. When the number of goods being imported into a country is restricted, the imported good becomes short and the prices of these goods increase locally due to which domestic consumers see locally produced items as a favourable option. For example: during the era f 2010, Mexico restricted the amount of sugar being imported into the country to two hundred and fifty tons (SCHMITZ, 2005, p.212). The above stated trade barriers are direct trade barriers levied by a country on imports and exports of goods and services. Countries even use indirect means to restrict import of international goods and services. These restrictions are levied in face of standards of goods and services being imported by a country. For example: US have restricted imports of those goods and services in which child labour is involved. Due to this, those countries that use child labour to produce goods and services can not export their goods and services to US. The first world countries have a practice of dumping their old products or used products in third world countries at cheaper prices, due to which the locals of third world countries find these goods more favourable and they heavily import used products. The governments of third world countries have applied restrictions in form of quotas and tariffs to reduce the import of such goods and services to save their local businesses. Governments provides subsidy to local producers of those goods and services that are being heavily imported. This is done to decrease the cost of locally produced goods and services to make local goods and services much favourable than imported ones. The small companies of a particular country experience the highest risk if a country imports more, to strengthen local small businesses, governments provide loans and to small businesses so they can compete against international companies. Governments even indulge in the activity of providing subsidies to exporters to encourage them to produce more and export more. Subsidies help in decreasing the cost of production, due to which domestically produced goods do not only become favourable to local consumers, these goods even seem favourable to international consumers. Governments even go to the extend of controlling the exchange rate system and instead of letting it function on the basis of market forces of demand and supply, government starts controlling the exchange rate. Government decreases the value of their own currency by increasing sale of local currency in international markets of foreign exchange. This leads to increase in the cost of importing goods which makes the imported goods expensive and local consumers start preferring locally produced items over internationally produced items. Trade barriers can have a major impact on businesses that trade internationally; various examples are available due to which businesses have suffered huge losses due to such barriers. Businesses can not control their external environment but they can challenge the changes in the external environment through various means. Both the importing countries and the exporting countries have realized the importance of trade between each other which has led to an increase in free trade or low trade barrier agreements between these countries. These trade agreements have been effective in decreasing the taxes applied by importing nations and decreasing the restrictions on quantities of imported goods and services. These agreements are mostly of two types. One of these agreements allow all the exporting nations to supply or trade goods and services to a particular country and the other type of agreement only allows restricted number of countries to export goods and services to a particular country. Agreements are even based on trading in specific markets and sectors, certain sectors are allowed to export in accordance to demand, where as certain sectors have been kept limited for export and import. One such example of these agreements is the GATT or General Agreement on Tariffs and Trade, those countries that become a part of this agreement are allowed to export and import as much as they want to other members of this agreement (ILIAS, 2008, p.21). RTA or Regional Trade Agreements is an example of limited trade agreements in which very few members are enrolled and allowed to trade. The members who become a part of this agreement are those that are located close to each other on the basis of Geography (SCHMITZ, 2005). Conclusion Trade barriers have been applied in shape of increase in taxes and restrictions on the amount of goods and services being exported and imported, but companies can compete internationally if their governments get into agreements with other countries. References ILIAS, S., & FERGUSSON, I. F. (2008). Intellectual property rights and international trade. New York, Novinka Books. SCHMITZ, A. (2005). International agricultural trade disputes: case studies in North America. Calgary, University of Calgary Press. Read More