Principle of Non-discrimination and the Rise BI-Lateral and Regional Trading Agreements - Assignment Example

Question 1: Principle of non-discrimination and the rise bi-lateral and regional trading agreements Under EU law, discrimination based on nationality has been forbidden since the 1957 Rome treaty. In addition, the law was boosted by the entry of Amsterdam into the force after a treaty signed in 1997. It has been forbidden by law to discriminate individuals within the union because of their racial or ethnic background, sex, disability, religion and beliefs, or age. The World Trade Organization considers the principle of non-discrimination as an important concept since it is central to the success of the multilateral trading system. This particular principle rests upon two pillars including; the national treatment obligation and the most-favoured nation. Free trade agreement can be described as the creation of welfare gains by allowing the purchase of cheap commodities by firms and customers from the cheapest source and ensures that production tends to be based on a country’s comparative advantage. Bilateral free trade agreements are trade relationships between two nations that allow tariff phase out in respective trade areas. The rise in bilateral and regional trading agreements has been aimed to minimize the barriers to trade on a preferential basis and reciprocal manner for the individuals in a particular agreement. Global trade has been shaped through these agreements since current levels of trade are between partners within regional and bilateral trading blocks. The regional and bilateral trade agreements are classified into basic categories depending on their degree of integration including; free trade area, customs union, common market, and an economic and monetary union. In that, within a free trade area members trade under eliminated barriers while barriers are maintained to non-members while a customs union moves beyond the free trade area and is involved in establishment of common tariffs to both trading and non-trading members. On the other hand, an economic and monetary union is where member countries share similar macro-economic policies and a common currency whilst the common market provides for the free flow of outputs and factors of production including; capital and labour. Question 2: Corporate Social Responsibility (and Friedman) The corporate social responsibility for a business is to maximize the profits of the shareholders according to Milton Friedman. Friedman’s notion is based on the perspective of a company’s justification to pursue increases in profits through maximum use of the available resources as its sole social responsibility. In addition, he emphasizes the need for other individuals to formulate and establish regulations and laws that leads the activities and promotes the achievement of success of companies. The push for firms to behave rationally is driven by the rules and frameworks of law inclusive of issues such as liability and property rights. A case for reference is the externality caused by pollution and it is therefore an important social end for companies to minimize emissions. In addition, the rules and framework for such controls are given by the legal system. While the companies make profits while emitting polluting gases, they equally compensate for these polluting costs through the increased earnings as costs of business increases. Milton Friedman argues that the effective management of externalities and the respective social responsibilities does not require the imposition of social responsibilities that may be ambiguous and vague to the interpretation of a company’s executive. Therefore, it important for articulate laws and regulations to be drawn by the legal system so as to ensure firms internalize the costs of the externalities t the environment. Overall, Milton Friedman’s perspective of firms’ pursuit of profit maximization in while exercising their corporate social responsibility should not be misunderstood. Firms are basically not at fault to seek and make efforts to minimize the potentially hazardous externalities to the environment. His argument was therefore intended to elaborate the effectiveness of an appropriate framework of regulations that clearly understands the social benefits of the society instead of exhortations of companies’ social responsibility. Companies such as Coca Cola run promotional initiatives with football clubs globally in a bid to fulfil their corporate social responsibility. For instance; Coca-Cola installs a HFC-Free Cooler globally so as to prevent emission of CO2 that is approximately 5.25 million metric tonnes. In addition, in a bid to increase its profits and meet its corporate social responsibility, Coca-Cola enters into partnerships in developing commercial solutions for the production of plastic bottles that are made entirely from plants. Therefore, the company meets both its profit maximizing objective and societal responsibility. Question 3: The notion of Comparative Advantage The international trade theory greatly relies on the concept of comparative advantages. It is normally mistaken to be absolute advantage whereas it is the difference in productivity of nations. The difference occurs since the aspect of comparative advantage may occur where nations are less advantageous. If the production of corn is much greater in a particular country for instance; United States whereas the production of computers is greater in South Korea therefore, the resources would likely be shifted to higher productivity industries from relatively lower productivity industries. This would eventually lead to an overall increase in the production output of both computers and corn. The two countries would end up having more products of both commodities as a result of trade. On the other hand, comparative advantage might occur where a country has an advantage in producing more of both commodities. For instance; the United States of America might be more productive in producing corn which is 5 times better than South Korea and produces computers twice as much as South Korea. Therefore, the United States bears increased productivity advantage in corn than computers while South Korea is as productive in corn and productive in computers. This positions South Korea as having its comparative advantage in its best product which is computers. The reason for the potentiality of benefits between both countries despite differences in productivity is because of other factors such as average wages. Countries that have lower productivity in all industries bear the characteristics of lower wages while higher production capacity nations have higher wages across its workforce. There will be a fall in the difference in wages between South Korean workforce and the United States workers. The fall will range between five times and two times and perhaps the average wage will be two and a half times higher in the United States. Therefore, for the highest productivity industry in South Korea which is computers, having a productivity of 50% is sufficient enough to go beyond the average wage which is about two and a half times in South Korea so as to make computer production as profitable as the production in the United States. Finally, concentration by nations to produce commodities they have comparative over others doesn’t necessary give the respective nations’ absolute advantage since total output can be added with the same amount of resources. Read More