The Globalization Policies in Different Countries - Coursework Example

International trade International trade Introduction The Globalization, Liberalization and Privatization policies adopted by different countries, opened the doors widely open for international trade. Foreign investment and participation in business is welcomed by many countries. The consumers will get better products at cheap rates because of the competition in the market. For example, as per the economic principle, scarcity of a commodity creates demand in the market and hence the price of that commodity will go up. Because of the foreign participation in domestic market, the customers will never fee any scarcity and hence the prices will come down definitely. But most of the countries are still confused about the extent up to which the foreign participation can be allowed. Everybody has the opinion that international trade can help the development of economy and infrastructure in a country. Critiques of foreign participation argue that the big foreign retailers will exploit the wealth of a country and the small scale industries of a country will be destroyed by allowing the entry of foreign business tycoons and MNC’s. It is interesting to analyze the pros and cons of international trade. The curve given below explains the Eastern Europe, Caucasus and Central Asia (EECCA) region trade from 1994 to 2005 International trade 2 International trade in the EECCA region (1994–2005) (International trade in the EECCA region (1994–2005), 1995) From the above light green curve it is clear that the international trade has increased gradually from 1994 till 1997. In 1998 though the international trade in this region had decreased a bit, it again started to increase from 1999 onwards. The curve shows a rapid increase in international trade after 2002. The trade between EECCA countries also increased during this period which is clear from the dark green curve. But it is slow compared to the international trade. The import also has been increased during this period which is evident from the orange curve. Import also can be considered as another way of international trade and hence we can conclude that International trade 3 international trade in general; both import and export has been undergone major increase during these period and the curve shows further growth prospects. Benefits of International trade “A greater flow of international trade and investment stimulates economic growth. That rising output requires more employment and generates higher living standards.” (Weidenbaum, 2003) Foreign participation through international trade can help the development of poor countries. For example, the poor countries may have lack of infrastructure and technology because of their inability to spend in these sectors due to financial barriers. Foreign companies can invest heavily in these countries and hence they will get better infrastructure and their youths will get employment also. In that sense international trade should serve as blessings to the countries especially the poor ones. “Global competition also keeps domestic businesses on their toes. It forces them to innovate and improve the quality of their products multinational enterprises can be effective mechanisms for economic development of the poorer countries, providing new technology as well as the investment capital to apply it.” (Weidenbaum, 2003) the domestic companies will be forced incorporate new technologies to their products in order to stay in the market. Moreover their Research and Development wing begin to function more actively to counter the threats caused by the new technologies from foreign countries and hence innovations and product improvement can take place immensely. International trade 4 Drawbacks of International trade The main drawback of international trade is the increased dependency of foreigners for the consumer durables. The domestic industries may not develop because of the excessive availability of the foreign products in the market. The domestic industries will be destroyed because of the foreign intervention in the market. For example, in India like countries people are very much interested in wearing gold ornaments. There was lot of small scale gold ornament making industries in India controlled by gold smiths up to a decade ago. But now because of the entry of foreign gold merchants in India, these small scale industries, which used conventional methods to make ornaments, were destroyed. They could not compete with the foreign gold merchants because of their advanced machineries and ornament making methods which allowed them to reduce the prices considerably compared to the small scale ornament making industries. “All economists argue that free international trade increases the total consumption possibilities for all trading partners” (EconDebates Online, 1998) Indifferent consumer culture is considered as the main cause of the current economic dip. International trade may increase consumerism to alarming levels. It is a fact that there are many people who were visiting a Hypermarket simply to give company to his friends, returns with heavy loads of goods. The cheaper prices and the variety of products may forces a consumer to buy more and more things even though his financial strengths may not be good enough. Such spending culture forces them to approach International trade 5 financial institutions for loans. The banks may allot loans without the evaluation of his financial capabilities and finally he may not be able to return the loans and will lead his rest of the life in debt. In that sense the international trade can adversely affect consumers. The presence of China in international market has created lot of problems because of their cheap quality products. The consumers will always go after cheaper products. Most of them will consider the price of a product while taking their buying decisions rather than the quality of the product. Chinese products were created big headaches to the quality product manufacturers. They were forced to compromise with the quality of their products in order to compete with the Chinese product and thereby stay in the market. Risks in International trade “While there are many risks associated with international trade, the most common issues are about intellectual property rights (IPR). While IPR issues may also arise domestically, the mechanisms for protection often stop at country borders. Patent and copyright protections are specific to each country with the laws, rules and remedies varying accordingly.” (Bugg, 2005) The intellectual property rights may vary from country to country. In developing or civilized countries, there may be enough laws to protect their intellectual rights and hence trading in such countries needs the exact knowledge about the laws in that country. In poor countries there may not be enough International trade 6 laws to protect their intellectual properties and hence the foreign business tycoons can exploit such countries for their financial interest. “Another common risk is currency fluctuation. Currency fluctuations can cause difficulty while processing a transaction. If you are selling a product or service that will be paid immediately upon securing a contract, the risk associated with fluctuation is minimal. However, if you conduct business that has a time-lag prior to payment, a fluctuation in the exchange rate could cause deals to go sour” (Bugg, 2005) Currency fluctuation can take place any time and also it is unpredictable. At the time of writing this article the dollar value is going steadily up. But it was a different scenario about 6 months before. Nobody expected such a rise in dollar value at present. This fluctuation can affect international trade immensely. Suppose a country or person has imported some wheat grains from America 6 months ago and agreed to pay them after 6 months. This country or person will definitely incur lose because of the dollar value rise. Now consider the opposite side. If the dollar value decreases during this period the same person or country will definitely gain more than anticipated. “Tariffs and duties are another regulatory consideration. Overseas customers will evaluate your price based on landed costs. In some countries, the tariff may be excessive, rendering your product uncompetitive” (Bugg, 2005) Some countries may incorporate excess tariffs and duties to the imported products compared to the domestic products in order to encourage the domestic production activities. In such cases it is difficult for the foreign business tycoons to invest in those countries. International trade 7 Do’s and Don’ts while allowing foreign participation Even under the current global financial crisis, the Indian economy has stood out because of the carefully formulated economic policies. Foreign investments and participations were limited to some specific segments alone in India. Most of the profitable public organizations are still under the government control and no private participation is allowed in such critical sectors. For example, the publicly owned nationalized banking sector has not been opened for foreign investors. The foreign banks can start functioning in India under the rules and regulations of the Reserve Bank of India. The investment by these public financial sectors in foreign markets were also restricted and that’s why the Indian banking sector has not been affected by the current economic dip even though some of the big foreign financial institutions were struggled to survive. Conclusion International trade has its merits as well as demerits. If utilized judiciously, international trade can be a blessing to many countries especially the economically poor countries. International trade can help the poor countries in developing their infrastructure and economies. Unemployment can be considerably reduced by welcoming the foreign participation. But unhealthy competition like the one posed by the China and the Chinese products may destroy the essence of the international trade and foreign participation. The foreign institutions should not be allowed to access the critical International trade 8 sectors like military and defense like areas of a country. Most of the MNC’s are motivated with profit making alone and they can exploit the wealth of the underdeveloped countries to their own advantages. In general, international trade has equal amount of merits and demerits and hence the governments should carefully evaluate the pros and cons before welcoming foreign participation in a specific sector. International trade 9 References 1. Weidenbaum Murray, (2003) Weighing the Pros and Cons of Globalization, Retrieved on March 5 2009 from 2. Bugg Peter, (2005) Pros & Cons of International Business, Retrieved on March 5 2009 from 3. EconDebates Online, (1998), International Trade Retrieved on March 5, 2009 from 4. International trade in the EECCA region (1994–2005), (2009), Retrieved on March 11, 2009 from Read More