Business - Government Trade Relations - Case Study Example

Business-Government trade relations The paper is a case study on trade relations between Cuba and United s. The studyaims at establishing the relevance of business-government trade relations concepts learnt in class to practical business relations. The study employs a literature review strategy in establishing trade relations between Cuba and America. The study also applies knowledge acquired during coursework in exploring trade relations between the two countries. The study finally establishes that Cuba have suffered trade sanctions imposed on it by United States mostly due to their political differences. Other reasons for the embargo on Cuba mainly related to cultural and economic motives. Introduction Purpose of the paper Government trade relations involve the act of selling or buying services and products through either foreign or domestic markets. Within the international and domestic markets, governments engage in business through importing or exporting goods and services. States regulate existing markets for exchange of goods and services by adhering to international organizations such as World trade organization (WTO) or government trade relations rules and regulations. International organizations such as WTO or local governments have the mandate to establish rules and regulations that subdue import and export of goods and services. International community rules always remain universal among member states except cases, which require special regulations. Rules that govern trade relations between World Nations include embargo, tariffs, quota, and subsidies. However, powerful countries such as United States, Russia, or Japan may influence existing government trade relations based on political, economic, or cultural motives. The paper investigates existing government trade relations between America and Cuba and relates the relationship between the two countries and business concepts learnt in class. In achieving its mentioned purpose, the paper clearly explains historical relationship between United States and Cuba. It then launches an insightful investigation on the existing methods of trade between the two countries. The article also provides an explanation on the motives that influence trade between United States and Cuba. The paper also provides an insightful analysis of the existing political and economic relations between Cuba and America. The paper also tries to explore the methods used by the two governments in promoting or regulating trade relations. In understanding the methods used by the countries in promoting or regulating trade, the review clearly explains the relationship between US departments of commerce and trade relations with Cuba. Within the study, there is a critical analysis of the findings, discussion of the possible implications of trade between Cuba and America and recommendations to the existing trade relations between the two states. The paper aims at explaining the concepts of business trade relations used by Cuba and America in correlation to those learnt in the course. It also explains reasons and motives why governments raise barriers to trade such as economic, political, and cultural incentives. The paper also clearly describes the instruments used by the two countries to restrict imports and exports and the manner in which global systems promote trade. Paper Relation to Class Concepts The paper rightfully relates to the concepts of government trade relations and ethics in international trade learnt in class. Class concepts on trade relations between governments discuss the methods used in promoting or restricting trade between countries. The methods such as political motives, economic, or cultural causes drives business relationship between United States and Cuba. Moreover, the paper explains the trade relations concepts such as Quota, subsidies, embargo, and relevance of WTO in managing business between countries. The paper is imperative in highlighting influence created by superpower nations such as United States of America. Knowledge gained in investigating the trade relations between the two countries is imperative in professional development. Consequently, the findings and recommendations presented in the study are necessary for detailed understanding of the relationship between Cuba and America. Background and Significance Before 1959, U.S was the internationally recognized Cuba’s principal trading partner among Westerns countries. U.S traded peacefully with Cuba within its state of Florida. Florida acted as the central market for trade between United States and Cuba. Within the trading system, Cuban government exported about 67 percent of its produce to United States. United States, on the other hand, exported about 70 percent to Cuba. Cuba remained interested in trading with United States due to the American’s willingness to invest in strategic sectors such as transportation with an aim of improving Cuban economy. The 40 percent of most of the cargo routed through Miami’s customs district resulted from Cuba’s transport. After the Cuban revolution in 1959, trade relations between United States and Cuba substantially deteriorated marked by political and economic issues. United States imposed an embargo on Cuba that contributed to further deterioration of diplomatic relations between the two countries. The embargo also implied that United States corporations or individual businesses could not engage Cuba into trade relations. Cuba and America governments have a long history of political and economic relations. After Castro took over the government of Cuba in 1959, a new regime of Cuban revolution occurred into relations between United States and the country devolved into arguments over political and economic bitterness. The two countries though geographically close to each other have had no serious diplomatic relations since 1961. Switzerland has acted as a mediator between Cuba and America in every occasion. Political and economic issues have contributed to trade restrictions between the countries for an extended time. The political and economic asylums primarily resulted from the rigidness of Fidel Castro after he overthrew the government (Council on Foreign relations, 2014). The political and economic rift between Cuba and America resulted from Fide Castro ambitious projects as aforementioned. Of significant contribution to trade restrictions between the two countries are the events in 1960, when Castro’s government seized private land, nationalized many private companies, which included numerous local subsidiaries of American corporations. Cuban government also heavily taxed most of the American products. Heavy duties levied on U.S exports by Cuban resulted into reduction of the latter’s’ export by half in just two years. United States responded to Cuba activities by imposing trade restrictions on nearly everything except most valuable products such as medical and food supplies. Castro then shifted trade relation with Soviet Union as retaliatory step to United States. United States bitterly protested the association between Russia and Cuba, which contributed the expanding rift between the two countries. United States government then raised a long time embargo on Cuba in 1962, which led to a decline in Cuban economy. United States principal exports to Cuba such as food, television, cars, and telephones considerably decreased following the ban. It is worth noting that embargo imposed on Cuba led to declining in economic and political development of Cuba. Political affiliations between Russia and Cuba led into greater impact of United States imposed embargo in Cuban economy. Increased restriction that derailed Cuban economic development resulted from Fidel Castro’s agreement with Soviet Union to harbor its missile manufacturing plants in Cuba. Political affiliation between Cuba and Russia angered United States. Russia remains a historic enemy of America. Political decisions made by Fidel Castro to allow Russia missile building bases in Cuba continued to widen enmity between Cuba and U.S. it is imperative to note that healthier political alliances between countries contributes to improved trade relations. Because of the aforementioned political affiliation between Cuba and Russia, United States enacted Helms-Burton law in 1996 to force embargo on foreign countries that traded with Cuba. Helms-Burton bill tightened Cuba’s economic blockade through its provisions that punished foreign-based companies or United States allied Countries, who decided to participate in trade relations with Cuba. The aftermaths of Helms-Burton act lead to Cuba’s retaliation by shooting two American airplanes owned. After the incidences took place, United States have either imposed or removed trade regulations on Cuba depending on political changes. However, in 2001, Cuba reached an agreement with United States in the aftermath of Hurricane Michelle to supply the former with agricultural produce. Hurricane Michelle being the costliest tropical cyclone in the history of Cuba resulted into economic crisis and shortage of food in Cuba. The crises led to Cuba’s acceptance to trade with United States despite the aforementioned political differences. Currently, in lieu to Hurricane Michelle, United States remains the main supplier of food to Cuba. Justification of the Study A justified study follows the legitimate reasons of an intention. The intent of the study was to understand and relate business concepts applied by governments in doing trade. Trade relations study between Cuba and United States as aforementioned explains detailed economic, cultural, and political motives that drive government involvement in trade. Cuba-US business relations follow a history of political and economic interests of its leaders. Fidel Castro’s political affiliations with Russia led to the deterioration of Cuba’s relations with America. Political reasons between the two countries that led to strict trade relations are imperative in business studies aimed at understanding business-government relations (Irogbe, 2013). Restriction imposed on Cuba by United States also forms a method of restricting trade between governments that engage in trade relations. Understanding the development of embargo through political occurrences and super power affiliations remains relevant to business-government trade relations study. Existence of embargo concept in Cuba-America relation study remains justified in achieving the objectives of the course. Work Environment and Position in the Organization I operate as a public relations officer in American department of State that deals with diplomacy actions. The department has enacted strategies aimed at revolutionizing the historic U.S relations with Cuba (U.S. Department of State, 2013). The unit-working environment has outlined reforms aimed at encouraging economic and democratic revolution between Cuba and Unite States. The policies adopted by the department also aim at increasing respect to human rights for Cuban citizens. In meeting the human rights of Cuba citizens, the policies aim at minimizing trade sanctions imposed on Cuba’s imports. Currently, United States commits its policies to supporting plight of Cuban citizens through encouragement of reliable trade relations. Relevance of the Position in the Organization Public relations department helps in bridging nations that face conflicts in trade. The office enacts foreign policies that aim at promoting government-business trade relations. Foreign policies include lifting embargoes, providing subsidies, humanitarian actions, and harmonizing political policies. Public relations officer assists business lawmakers in formulating policies aimed at mitigating politics initiated sanctions. They also associate with diplomatic communities and world trade organizations in solving trade relation issues. Applicable Concepts of the Study from Course Work Concepts and Relevance The study reveals concepts of trade relations such as methods of regulating and promoting trade. The applicable concepts of restricting trade between U.S and Cuba included trade sanctions and embargo. Embargo concepts gained in coursework remained relevant in understanding political reasons for imposing constant sanctions on Cuba. It is notable that the concepts of trade relations remained consistent in either protecting domestic companies or promoting imports. For instance, Cuba engaged Subsidy concepts in encouraging growth of local industries while reducing the prices of ordinary commodities. Reduced commodity prices are indispensable in improving affordability of available resources such as food. The concepts herein learnt through the study are essential in instilling practical aspects of business-government trade relations. It was also imperative to understand the relevance of government related business ethics. Methods of Promoting Trade United States and Cuba used subsidies, Free trade zones, and export financing in promoting trade relations. Subsidies States apply subsidies concepts in developing existing companies. Subsidies entail government initiatives to offer financial assistance to domestic producers informs of tax breaks, low-interest loans, cash payments, and product price support. Subsidies assist governments in fending off international competitors and enabling growth of local companies (Khan, & Batteau, 2012). Cuba used the concept of Subsidies in promoting development of its local industries such as the agricultural sector. Most of the countries manufacturing sectors such as agriculture had significantly reduced after economic sanctions on Cuba trade by United States (Saysana, 2011). Cuban government granted subsidiaries to help reduce the costs of production in established industries. Subsidiaries helped in lowering the prices of commodities with the aim of accommodating poor citizens. Export Financing Export financing relates to financial aids advanced by financial institutions on banks to particular companies or businesses for the purpose promoting a country’s rate of exports. Export financing involves activities such as loan guarantees extended to companies for the sole purpose of improving global audience. Export financing initiatives are imperative in improving the country’s international export and image (Kunst, 2011). Concepts of export financing remain applicable in promoting domestic export in such a way as to assist establishing companies in financing their exports. In United States, agencies that assist companies in obtaining export financing includes Overseas private insurance corporation (OPIC) and Export-import bank. OPIC agency helps U.S companies in insuring against potential losses that may result from currency inconvertibility, war, insurrection, expropriation, revolution, and insurrection. Export financing remains relevant for growing businesses. Smaller companies that have started to export products require financial assistance to manage exports. However, subsidizing shipping expenses for large multinational companies, through a corporate welfare may burden taxpayers. The government may levy the subsidized costs on taxes, which ultimately affects citizens. Foreign Trade Zones A free trade zone (FTZ) refers to a specified geographical area where government authorities or businesses may handle, land, reconfigure, or re-export imported or exported goods. Foreign trade zones are vital in improving employment opportunities for countries citizens. Foreign trade zones also assist in providing safe trading areas for business transactions. Mostly, foreign trade zones relate to designated geographic regions through which the government authorities allow passage of merchandise at lower customs taxes or duties. The concepts of international trade areas were imperative during the study in understanding the relevance of Florida trade Zones between Cuba and the America. It was essential to understand why most American companies prefer developing their services within business areas. Customs duties typically tend to increase costs of production and the period taken by the produce to reach the intended market. In establishing free trade zone facilities, companies acquire the ability to minimize customs taxes levied on their products by the government. The companies complete final product assembly in the foreign trade zones. Moreover, FTZ increases efficiency of customs, reduces insurance costs, and helps in proper storage of merchandise awaiting quota openings. FTZ remained relevant in improving efficiency of export and import between Cuba and America. Relevance of World Trade organization WTO is a global professional entity that deals with the regulations of trade between various countries. It was important to understand the relevance of the international community in regulation trade between nations. The concepts learnt about importance of world trade organization in government trade relations remained appropriate in understanding the existing relations between United States and Cuba. World trade organization was urgent in negotiating market opportunities between Cuba and America and settling trade disputes (Herman, 2012). Methods of Restricting Trade Quota Quotas refer to restrictions on the amount of goods that a nation can either export or import. Most states administer quota system on other nations by granting licenses. Import quotas imposed on the amount of goods entering the country are imperative in maintaining domestic market shares and prices by restraining competition. In situations where government imposes import quotas, consumers suffer from high prices and limited choices for products. However, import quotas present companies of such governments with opportunities for growth. Import quotas may disadvantage local companies who rely on imported raw materials. Cuba and United States opted to maintain export quotas to help keep local industries. Export quotas remain applicable to Cuba government who export natural resources. Cuba and America also choose to impose export quotas in order to target international prices when the costs of goods increase. Export quotas affect consumers of importing nations by reducing the range of goods’ preferences and increasing prices of available goods. In particular, situations, governments may opt to impose tariff quotas on certain imports. Tariff quotas impose low rate for quantities of imported goods and high rate for other types. Embargoes Embargoes results when a country faces a complete ban on both import and export trade of its goods. Government business agencies may impose bans on specific products or ultimately impose ban on a countries imports and exports. Trade regulations leading to embargo may result from international organizations such as United Nations (UN) or individual countries. Concept of embargo had applications in understanding the sanctions imposed on Cuba by United States. Embargoes imposed on Cuba resulted from political differences with United States. Administrative Delays Governments may impose bureaucratic rules or regulatory controls mainly to impair rapid flow of imports into the country. Administrative delays may include requirements such as international air carriers, understaffing customs offices primarily to cause delays, requiring inspections that aim at damaging imported products. United States used administrative delays concepts in restricting export of certain commodities following organizational conflicts with Fidel Castro. Benefits of Adopting the Concepts It was imperative to adopt the concepts of business-government relations to assist in regulating trade between Cuba and United States. Embargo imposed on Cuba by United States helped the latter in displaying its political superiority and relevance in economic development. Subsidies supported both Cuba and American governments in encouraging development of domestic industries. Discussion, Implications and Recommendations Discussion and Findings It is evident that most governments engage in trade mainly for political, economic, and cultural motives. Trade between nations may consist of free trade or controlled trade through government imposed restriction. The main reasons for engagement in trade relations between Cuba and America included, Political Motives Provision of Employment The political motives that drive states to trade relations include reasons as providing and protecting unemployment for its citizens. As the population of a country increases, need for employment rates increases and in such cases, the governments must intervene to avert possible situations of unemployment. Preserve National Security Governments also engage into trade relations to preserve national security. Preservation of national security remains a political motive driven by the urgency to maintain national cohesion and international image of the government. The rules ensure maintenance of national security through sponsoring protection for both exports and imports of industries that are imperative to its national security. In preserving national security, it is notable that states restrict imports mainly to guarantee supply of domestically produced goods and services. For instance, Preservation of national foods stores is imperative in securing food security. Nations that imports most of its food supplies from the international community may remain vulnerable to political pressures and aftermaths of wars. In war cases, countries that rely on imported agricultural produce may face years of inadequate food especially if they engage in war with a nation who is their primary food provider. In such cases of conflict with the principal supplier, importing nation raises restriction on agricultural produce that reaches the rival state. The importing nation may also influence the international community in imposing import restrictions to the rival country in war. Therefore, most governments fight to raise their agricultural sector by restricting imports and encouraging domestic farm produce. Governments ban export of certain goods that mainly relates to the defense sector. National security motives for banning export of certain goods relies on request for government agencies review on the applicability of exporting produce or technologies that have dual functions to a country. Double usage implies that the goods or services possess both military and industrial applications. Gain Influence Most governments raise their political motives primarily to impose control on smaller nations and display their prowess in various industries. Such states that in most cases have developed both industrially, politically, and economically mainly engage in trade with underdeveloped countries to control the activities of the later. Such motives of that involve superpower reasons explains reasons why America continues to increase the control over Cuba. American influence on Caribbean basin has mostly continued due to political reasons to convince the international community that United States still have control over developing countries. Response to Unfair Trade In most circumstances, governments motives on imposing restrictions on free trade with other countries results from the international community force. Governments may have no need of allowing free trade with particular countries if other foreign nations have restricted such trade relations. States strive to maintain international image and avoid similar ban on trade by regulating authorities. Therefore, such states comply with international laws and submit to their request. Underdeveloped Countries may also raise restrictions on free trade. As a result, of the impact from developed nations that mostly provides them with aids. America being a super developed country had authority of controlling Cuban trade with other countries. They could influence the international community to increase restrictions on free trade between Cuba and other countries mainly for their political agenda. Cultural Motives Experiences on different cultures may influence nations to impose restrictions on free trade. As states remain exposed to products and citizens of different countries, cultural systems gradually revolutionize. Authorities may decide to impose restrictions on free trade primarily to prevent unwanted cultural influence from invading their esteemed culture and cause distress or change. Such government motives aim at preserving cultural systems. Other countries may enact laws that prevent cultural erosion or change by restricting free trade or media. Cuba realized that United States remained a threat to its national cultures mainly due to the latter’s global strength in media and consumer goods (Naiki, 2009). Cuban thoughts over United States explain the existing link between international trade theories and contemporary realities of international business. Economic Motives Pursue Strategic Trade Policies Most firms enjoy first-mover advantages and economies of scale in cases where governments intervene by enacting strategic trade policies. First-mover would result mainly because of economies of scale that will limit the number of firms in a particular industry. The companies would benefit by earning better profits once they have solidified market positions and acquired first-mover advantages. Government trade policies may also have spin-off effects on industrial activities such as transportation (Lee, & Chen, 2011). In most cases, government support to domestic industries results from the influence mainly from special interest groups within the government or political lobbying. Such government-oriented support may not finally benefit the intended consumers. Moreover, government assistance to local companies may also result into high costs of produce and inefficiency of national industries (Daugbjerg, & Svendsen, 2011). Implication of the Study Exploring Cuba-U.S. trade relations was important in understanding the impacts of the embargo on the economy of the country. It was crucial to note that embargos imposed by Superpower companies on smaller economies such as Cuba greatly derail its economic growth. Recommendations Economic experts and human activists recommend that embargos imposed on the country should remain considerate of human rights. Imposing embargo on a country with insufficient agricultural produce may result into food insecurity and hunger. Governments and world trade organizations should limit sanctions imposed on a country mainly for the best interest of its citizens. References Council on Foreign relations. (2014). U.S-Cuba relations:Backgrounders. 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Promoting organic and fair-trade certification in the lao PDR coffee sector: Benefits and challenges for farmers and local economies. (Order No. 1500240, Oklahoma State University). ProQuest Dissertations and Theses, 222-n/a. Retrieved from http://search.proquest.com/docview/898959357?accountid=45049. (898959357). U.S Department of State. (August 30, 2013). Diplomacy in action: U.S. Relations with Cuba. Retrieved October 4, 2014 from, http://www.state.gov/r/pa/ei/bgn/2886.htm Read More