Restricted and Non-Restricted Trade - Essay Example

? Restricted and Non-Restricted Trade Trade is the exchange of goods and services between people. Trade is characterized by a situation where there is a willing seller and a willing buyer of goods or services. In trade, the commodities and services are exchanged for a legal tender that is acceptable to both parties. Legal tender is money that is used to measure and give value to a commodity or service, and it is used in exchange for these items. Before the use of money as a legal tender, trade was carried out through the barter system. This system was characterized by the exchange of goods for other goods, which were deemed equal in value and would satisfy both traders’ needs. In time, trade has gone through revolutionizing changes with the advent of a legal tender system. This saw trade become widespread and global in perspective because of the new terms of valuation. These new terms of valuation made it easier to conduct trade because, unlike barter trade, it was easier to carry money for long distances than the actual goods. This paper aims at investigating the arguments for restricting trade and those for not restricting trade. Restrictive trade originated in the late 1800s where rich merchants involved in trade of high value products and services sought to create monopolies in the market so that they could control the market (GILLIES, 2004: 862). This amounted to restricting trade through the formation of international organisations for traders and manufacturers of a few select items that were of high value and demand in the market. An organisation like this is allied, by agreement, to control the natural elements of supply and demand, in the market. They achieve this by fixing prices and quotas for sales, divide markets and limit supply (GILLIES, 2004: 867). These restrictive trade practices end up eliminating competition in the market, which creates a precedent for consumer exploitation. Competition, in the market, keeps all the players, in check, by ensuring that they all strive to satisfy the consumers’ needs, or risk losing out to those who fulfil their customers’ needs. Without competition in the market place, the consumers would be faced, with the aspect exploitation from unscrupulous traders out, to make a profit at the expense of consumers. When a system of trade restricts trade practices among its players, it predisposes consumers to exorbitant and unaffordable prices. Consumers are supplied with substandard goods and services because there is no alternative source of the products they seek. Elimination of competition by restricting trade robs consumers of the freedom and right of choice regarding the quality and supply of commodities they desire and need (BRUCE, 2001: 56). Limitation of supply creates high demand for goods and services, which exposes consumers to abuse through over pricing. Restricting trade has seen a decline in trade volume because it reduces consumers’ purchasing power and decreases the number of traders allowed to participate, in a given trade. Restriction on trade has also contributed to protection of inefficient and unqualified traders in the market who add no value to consumers or the economy of the country. Restriction on trade has seen to the development of domestic and international organisations that operate like cartels because of their characteristic monopolising of markets of their interest (FRANK & BERNANKE, 2003: 419). Beneficiaries of these organisations advocate and support these cartels by arguing that they help protect participating firms that are weak thus shielding them from unfair competition. According to most studies, business entities that benefit from restricted trade systems postulate that this structure of trade helps these firms deal with limitations caused by high business operating tariffs (BRUCE, 2001: 78). Cartels created because of restrictive trade systems are able to distribute risks and profits equally amongst themselves which acts as a cushion against uncertainty in the market. This uncertainty can be brought about by volatile world events like natural disasters and world economic meltdowns like financial depressions. Participants in a restricted trade system are able to stabilize the markets they control because they have overriding power with regard to the market dynamics involved. These trade systems also enable them to reduce costs irrespective of the prevailing market situations as long as it suits their interests. Through the pre-emptive actions of these cartels, consumers are better protected because it comes directly from the seller of the products and services. This is because the seller knows best of what quality and purpose the products and services they supply are to the consumer. They are thus better informed and equipped to supply and serve the consumer efficiently and effectively. Some governments like the United States have been found to support export associations and participate in trade agreements (FRANK & BERNANKE, 2003: 432). Some of these trade agreements are meant to regulate production and international trade in rubber and other commodities. This is based on the premise that agreements and supervision from different governments on the same line of trade is less harmful than creation of monopolies in the home market of participating countries. Governments are involved in the setting up of these organisations that operate like cartels especially when valuable commodities like oil and diamonds are involved. An example of an international organisation that came into existence by being sanctioned by governments is the Organisation of Petroleum Exporting Countries (OPEC) (PRIDE, HUGHES & KAPOOR, 2013: 75). OPEC is an organisation that gets support from government-sanctioned policies, economics and international affairs. Governments sanction the existence of such organisations by enacting bills and passing of the legislature that supports the functions of cartel like business enterprises. For example, the legalising of the export associations in 1918 by the United States of America government shows how governments promote these entities. Cartels and organisations that operate in restricted trade systems are strictly controlled entities in many nations, which support them as a matter of necessity than anything else. In many countries, restricting trade is forbidden and it only occurs under unusual circumstances for a short period when the need arises. Free markets or non-restricting trade systems, on the other hand, promote classic theories of economic competition and allows the laws of supply and demand to control supreme (PRIDE, HUGHES & KAPOOR, 2013: 82). Non-restricting trade caters for the both the interests of the consumer and the supplier without placing undue emphasis on either side (PRIDE, HUGHES & KAPOOR, 2013: 82). Competition is rife in a non-restricting trade set up where there is constant change in product quality with an aim to attract and retain customers. Exploitation is kept at a minimum and consumers enjoy the right and freedom of choice for products and services. A free market is characterised by having prices of its commodities being determined and set by the forces of demand and supply. This allows for elimination of price fixing by unscrupulous traders and exploitation of consumers. Non-restrictive trade is the best system because it promotes economic development through increased trade volume, which is boosted by improved consumer purchasing power (PRIDE, HUGHES & KAPOOR, 2013: 109). Improved purchasing power is due to the existence of fair pricing of commodities and availability of a wide range of products. Non-restricting trade ensures that inefficient traders, in the market place, are weeded out, which ensures that there is quality, in trade practices, and consumers get value for their money. Trade between nations exists based on what adds value most to the respective countries involved in trade with each other. A country like Russia heavily relies on its natural gas exports to the European Union for foreign exchange, which it uses to cater for the nation’s food requirements (BRUCE, 2001: 121). This is because Russia is almost entirely composed of land that is not arable enough to sustain its food requirements. Brazil relies, on the United States, to consume its beef exports, which is a leading foreign exchange earner. Australia depends on China for its extensive mineral resources like copper and iron. Egypt looks to France’s fashion industry to consume and sustain Egypt’s textile industry especially that one of cotton. Venezuela is a leading exporter of its oil to China and Russia thus it can be said that Venezuela is reliant on these two countries for trade. Bibliography BRUCE, A. (2001). The Trade Practices Act: restrictive trade practices law. Sydney, N.S.W., Lawbook Co. FRANK, R. H., & BERNANKE, B. (2003). Principles of microeconomics. Beijing, Qing hua da xue chu ban she. GILLIES, P. (2004). Business law. Sydney, Federation Press. PRIDE, W. M., HUGHES, R. J., & KAPOOR, J. R. (2013). Foundations of business. Mason, OH, South-Western/Cengage Learning. References. 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